BOJ’s Uchida Sees AI Demand Boost, Warns of Market Risk

Bank of Japan Deputy Governor Shinichi Uchida said artificial intelligence has so far acted as a large positive demand shock, supporting economic activity and putting upward pressure on prices, while easing financial conditions overall. He warned that markets could face a correction if corporate profits do not meet expectations tied to the AI investment boom. In a speech published by the Bank of Japan on October 5, Uchida said AI-related investment and adoption were boosting demand. Rising share prices associated with the technology have made financial conditions more accommodative, he said, though that effect has been partly offset by heavy bond issuance from technology-linked companies. The borrowing has pushed up long-term interest rates. Uchida described the balance of effects as still uncertain. For now, he said, the demand-side impact appears to have come first. But if profits fail to materialize as expected, current market valuations could prove unsustainable and trigger a pullback. The warning was presented as a risk, not as a prediction that a correction is imminent. The technology could also affect the economy’s supply side.