Bank of Japan Deputy Governor Says AI's Impact Could Extend to the Neutral Interest Rate

Bank of Japan Deputy Governor Shinichi Uchida said artificial intelligence is triggering a demand surge that is pushing up inflationary pressure and long-term interest rates, with the effects potentially spilling over into the neutral rate. "First, this is a significant positive demand shock that puts upward pressure on the economy and prices. Second, it could affect the supply side, perhaps positively by boosting productivity and enhancing capital stock accumulation, which in turn could influence the real neutral rate," Uchida said Monday in a speech. Uchida noted that while growing demand for AI has pushed up stock prices and loosened financial conditions, large-scale bond issuance by tech companies has pushed up longer-term yields, tightening financial conditions. Similarly, the longer-term structural effects could pull policy in different directions. "AI may rapidly render certain forms of human capital obsolete, particularly those skills designed for cognitive tasks," Uchida said. "It could also exacerbate social inequality, as those with more technical skills and flexibility may reap greater benefits than others." He added that these conflicting effects require careful study, and their overall impact on the real neutral rate remains difficult to assess. "We do not yet have a clear answer," he said.