Bank of Japan warns global AI boom has eased financial conditions amid potential valuation risks

The global artificial intelligence (AI) boom has effectively acted as a large-scale positive demand shock, easing financial conditions and lifting asset prices, Bank of Japan (BOJ) Deputy Governor Shinichi Uchida said.

Speaking about the central bank’s policy outlook, Uchida said robust corporate spending and the adoption of new technologies were boosting economic activity and putting upward pressure on underlying prices.

“It is a big positive demand shock, which has put upward pressure on the economy and prices,” Uchida said in the text of a speech published on the central bank’s website on Monday.

He warned, however, that financial markets could face a sharp pullback if expected AI-related profits fail to materialize and current valuations prove unsustainable.

Equity gains and increased capital accumulation have made financial conditions more accommodative overall, while heavy corporate bond issuance by technology-linked firms to finance infrastructure expansion has simultaneously put upward pressure on long-term interest rates.

The BOJ said strong demand associated with advanced technologies was an important factor in its assessment of the economic outlook and monetary policy.

Uchida also noted that AI could boost productivity and accelerate capital accumulation, potentially affecting Japan’s natural rate of interest—the level at which monetary policy is neither stimulating nor restraining the economy.

However, he said the BOJ was still assessing the technology’s broader economic impact and that it remained difficult to determine its overall effect on Japan’s natural rate of interest.

The central bank will continue to examine economic and financial data to establish a “consistent picture” of AI’s impact, Uchida said.