Bank of Japan Warns AI Demand Could Drive Inflation

The Bank of Japan has stated that global demand related to artificial intelligence may exert persistent upward pressure on inflation in Japan, providing further justification for recent interest rate hikes. The bank noted that while AI applications are expected to enhance productivity and exert downward pressure on prices in the medium to long term, in the short term, the investment boom driven by AI could lead to inflationary effects that outweigh the productivity gains. Stronger investment activity will boost demand and push prices higher. The Bank of Japan also mentioned that part of the rise in global producer prices is due to increased oil prices stemming from conflicts in the Middle East, while another part is attributed to the global demand shock for AI-related goods. The report states that the spillover effects of AI demand will persist for some time, and combined with the rising import costs due to the depreciation of the yen, domestic inflation in Japan may continue to face upward pressure.

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