Bank of Japan (BoJ) Deputy Governor Shinichi Uchida said on Monday that Artificial Intelligence (AI) has become a major focus among central banks, including at BoJ monetary policy meetings.

Key quotes

Adoption of AI could have both positive and negative effects on productivity and labor markets. 

AI has become a major focus among central banks, including at BOJ monetary policy meetings. 

AI impacts key monetary policy parameters including output gap, financial conditions, and star variables. 

AI a major positive demand shock putting upward pressure on economy and prices. 

AI may influence supply side, potentially boosting productivity and increasing capital stock accumulation. 

AI has driven up stock prices, easing financial conditions, while significant bond sales by AI-related firms have pushed long-term rates higher. 

We will keep closely monitoring economic and financial indicators to understand the consistent effects of AI adoption. 

Tentatively, demand-side impact of al appears first, making financial conditions more accommodative on balance, while correction risk remains if profits do not. 

Market reaction

At the time of writing, the USD/JPY pair is down 0.21% on the day at 157.50.

BoJ flags AI as a new upside risk for inflation and the Yen

BoJ’s Uchida speech scores 7.2 on FXS Speechtracker, exactly in line with Uchida’s historic average, signaling a steady but meaningful policy-relevant intervention. The emphasis on AI as a major positive demand shock, easing financial conditions and lifting stock prices, tilts the tone modestly hawkish as it frames AI as an upside risk to growth and prices that BoJ must factor into the output gap and star variables.

By highlighting that AI-related bond issuance is pushing long-term rates higher and that accommodative conditions could reverse if profits disappoint, the speech underscores two-way risks but leans toward vigilance on inflation rather than support for prolonged ultra-easy policy. For FX, the recognition that AI can tighten financial conditions over time and raise equilibrium rates is mildly supportive for the Yen, as it nudges expectations toward a BoJ that is less tolerant of persistent upside surprises to demand and prices.