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BoJ official says AI is acting as an initial demand shock
Shinichi Uchida warned that the net monetary impact could reverse if corporate profits do not support current expectations.
Bank of Japan Deputy Governor Shinichi Uchida said on October 5 that AI is already affecting the economic variables central banks monitor for monetary policy, and that AI is initially operating as a “big positive demand shock.”
Uchida said the AI demand boost is putting upward pressure on economic activity and prices before longer-term supply side benefits and productivity gains fully materialize.
He added that AI could eventually affect the economy’s neutral rate of interest, or r-star, but that the balance of those effects is still evolving.
Uchida said AI driven gains in equity prices have eased financial conditions, while heavy bond issuance by AI related companies has pushed long term interest rates higher, and he said his tentative view is that “the demand side has come first,” making financial conditions more accommodative on balance so far, though the impact could reverse if corporate profits fail to justify expectations, according to Action Forex.