The Bank of Japan warns that demand for AI may push up inflation.

The Bank of Japan (BOJ) said on Monday that global demand for artificial intelligence (AI) could exert sustained upward pressure on Japan’s inflation, signaling growing concern over inflation risks at the central bank, which may further strengthen its case for an imminent interest rate hike. The BOJ noted that in the medium to long term, AI adoption should boost productivity, and as firms and workers gradually adapt to the technology, it will exert downward pressure on prices. However, the BOJ stated, "In the short term, the inflationary impact of the AI-driven investment boom could outweigh the effects of productivity gains." This is because stronger investment activity will boost demand and drive up prices. The central bank added that the rise in global producer prices stems partly from higher oil prices due to the Middle East conflict, and partly from a "positive global demand shock" for AI-related goods. The report noted that the spillover effects from AI demand will persist for some time. Combined with rising import costs due to the yen’s depreciation, Japan’s domestic inflation is likely to face sustained upward pressure. (Jin10)