The Bank of Japan said Monday that rising global demand tied to artificial intelligence could put lasting upward pressure on inflation in Japan, a view that may add to the case for a near-term rate hike. According to the central bank, AI adoption should improve productivity over the medium to long term, and as companies and workers adapt to the technology, that process could eventually weigh on prices. In the near term, however, the BOJ said the inflationary effects of the AI-driven investment boom may outweigh the benefits from higher productivity. The bank said stronger investment activity would lift demand and push prices higher. It also noted that global producer prices have risen partly because oil prices moved up after conflict in the Middle East, while AI-related goods have seen what it described as a positive global demand shock. The report added that spillover effects from AI demand are likely to persist for some time. Combined with higher import costs linked to yen weakness, the BOJ said domestic inflation in Japan may continue to face sustained upward pressure.
The Bank of Japan said Monday that global demand related to artificial intelligence could place sustained upward pressure on inflation in Japan, a sign that the central bank is growing more concerned about inflation risks and one that may strengthen the case for a near-term rate hike.
The BOJ said that over the medium to long term, the use of AI should raise productivity. As companies and workers gradually adapt to the technology, that adjustment should put downward pressure on prices.
Near-term investment surge may outweigh productivity gains
The central bank also said, "In the short term, the inflationary impact from the investment boom driven by AI may exceed the effect of productivity gains." It said the reason is that stronger investment activity would boost demand and push prices higher.
Oil, AI demand and yen weakness add to pressure
According to the BOJ, global producer prices have risen partly because oil prices increased following conflict in the Middle East, and partly because AI-related goods have seen a "positive global demand shock."
The report said spillover effects from AI demand will remain in place for some time. Together with higher import costs caused by the weaker yen, domestic inflation in Japan may continue to face persistent upward pressure.
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