Bank of Japan Warns AI Boom Could Reverse If Profits Fail to MaterializeTechnology

The technology could also raise productivity and accelerate 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 added. “But there is a risk of correction if profits do not follow.”

While AI has boosted stock prices and loosened financial conditions, Uchida noted that huge bond issuance by AI-related firms has simultaneously put upward pressure on long-term interest rates — a tension central banks must navigate carefully.

<h2>Implications for monetary policy</h2> The BOJ will continue examining economic and financial data to build a &#8220;consistent picture&#8221; of AI&#8217;s impact, Uchida said, adding that the overall effect on Japan&#8217;s natural rate of interest remained hard to gauge.

The central bank has identified robust AI-related demand among factors that could push underlying inflation above its 2 percent target, potentially necessitating further monetary tightening. The BOJ raised interest rates in both June and September, as the energy shock from the Iran war added to price pressures already building from a weak yen, which raises import costs.

Market analysts said Uchida&#8217;s remarks signal that the BOJ is watching the AI-driven rally with growing caution. With global tech stocks having absorbed vast AI-related investment this year, any sign that corporate earnings are failing to keep pace could trigger sharp repricing across equity and bond markets — a risk the deputy governor&#8217;s speech put squarely on the radar.

Japan imports almost all of its crude oil, most of which came from the Middle East before the closure of the Strait of Hormuz — underscoring how geopolitical disruption and the AI investment wave are colliding on the central bank&#8217;s policy outlook.