Summary BOJ's Uchida says the global AI boom has boosted demand and asset prices but warns markets could correct if expected profits fail to materialize, while bond issuance raises long-term rates.
TOKYO (Reuters) - Bank of Japan Deputy Governor Shinichi Uchida said the global AI boom may have eased financial conditions by stoking demand and boosting asset prices, but warned of the risk of a market pullback if expected profits fail to materialize.
"It is a big positive demand shock, which has put upward pressure on the economy and prices," Uchida said on worldwide AI adoption in the text of a speech on the central bank's website on Monday.
The technology could also raise productivity and enhance capital stock accumulation, which in turn might affect a country's natural rate of interest, he said.
"Tentatively, it appears the demand side has come first and made financial conditions more accommodative on balance," Uchida said.
"But there is a risk of correction if profits do not follow."
While AI has boosted stock prices and made financial conditions easier, huge bond issuance by AI-related firms has put upward pressure on long-term interest rates, Uchida said.
The BOJ will continue to carefully examine economic and financial data to ascertain a "consistent picture" on AI's impact, he said, adding that the overall effect on Japan's natural rate of interest was still hard to gauge.
The BOJ has identified robust AI-related demand as among factors that could push underlying inflation above its 2% target, necessitating further monetary tightening.
The central bank raised interest rates in June and September as the energy shock caused by the Iran war added to price pressures from a weak yen, which increases import costs.
Japan imports almost all of its crude oil, of which most came from the Middle East before the closure of the Strait of Hormuz.
