Global Market: BOJ's Uchida warns AI boom could trigger market correction

Bank of Japan Deputy Governor Uchida warned that the AI boom, while boosting economic demand and potentially lifting productivity, could trigger a market correction if valuations get too far ahead of actual profits. He noted that AI has acted as a major positive demand shock, supporting economic activity and pushing prices higher. The concern isn't about AI itself but about the disconnect between inflated asset prices and the real earnings those AI investments will eventually generate. The AI boom has created conflicting pressures on Japan's financial conditions. Stock prices tied to AI have eased borrowing costs, but heavy bond issuance from AI-related companies has simultaneously pushed up long-term interest rates. The BOJ has flagged strong AI demand as a factor that could push underlying inflation above its 2% target, which could force further rate hikes. Japan's already dealing with inflation from energy costs linked to Middle East tensions and a weakening yen that makes imports more expensive. Uchida emphasized that the BOJ is still assessing how AI will ultimately affect Japan's natural rate of interest and the broader economy. The challenge is that AI's impact remains uncertain — it could reshape productivity and capital accumulation in ways that change how the central bank thinks about monetary policy. For now, the bank is watching the data closely while acknowledging that determining AI's long-term effects on inflation and interest rates is difficult.