Bank of Japan Deputy Governor Masayoshi Uchida addressed the implications of artificial intelligence (AI) for monetary policy, noting its potential positive and negative effects on productivity and labor markets. He emphasized that AI influences several key monetary policy variables, including the output gap, financial conditions, and neutral-rate measures.
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According to Uchida, AI serves as a significant demand shock, exerting upward pressure on the economy and prices. It also has the capacity to positively affect the supply side by enhancing productivity and supporting capital accumulation. Furthermore, AI's influence has resulted in rising stock prices and eased financial conditions. However, the heavy bond issuance from AI-linked companies has put additional upward pressure on long-term interest rates.
Uchida indicated that the Bank will continue to assess economic and financial indicators to understand the potential impacts of AI adoption. Currently, the demand-side effects of AI seem to be emerging first, contributing to more accommodative financial conditions overall. Nonetheless, there is a risk of a market correction if corporate profits do not keep pace.
Historically, Deputy Governors at the BoJ have played a significant role in shaping policy discussions, often serving as the intellectual core of the committee. Uchida's remarks highlight both the promising demand shock from AI and potential supply-side benefits, suggesting the bank maintains flexibility in its policy approach.
The reference to increased corporate bond issuance adds complexity to the BoJ’s ongoing normalization efforts, particularly regarding its sensitivity to term premiums on long-term bonds. Observers are advised to track whether this theme evolves into formal policy discussions and how it might influence estimates of the neutral rate as the central bank deliberates future policy directions.