THE BANK OF JAPAN WARNS AI OF DEMAND OR PUSHES INFLATION

ON MONDAY, 3 AUGUST, THE CENTRAL BANK OF JAPAN INDICATED THAT GLOBAL DEMAND FOR ARTIFICIAL INTELLIGENCE-RELATED ENERGY COULD CREATE A CONTINUING UPWARD PRESSURE ON INFLATION IN JAPAN, SUGGESTING THAT THE BANK WAS INCREASINGLY CONCERNED ABOUT INFLATION RISKS, WHICH COULD FURTHER JUSTIFY ITS RECENT INTEREST RATE HIKE. THE CENTRAL BANK OF JAPAN STATED THAT IN THE MEDIUM TO LONG TERM, THE APPLICATION OF ARTIFICIAL INTELLIGENCE SHOULD INCREASE PRODUCTIVITY AND PUT DOWNWARD PRESSURE ON PRICES AS FIRMS AND WORKERS GRADUALLY ADAPT TO AI TECHNOLOGY. HOWEVER, THE CENTRAL BANK OF JAPAN STATES: “IN THE SHORT TERM, THE INFLATIONARY EFFECTS OF THE INVESTMENT BOOM PROMOTED BY AI MAY OUTWEIGH THE EFFECTS OF INCREASED PRODUCTIVITY.” THIS IS BECAUSE STRONGER INVESTMENT ACTIVITIES WILL BOOST DEMAND AND DRIVE HIGHER PRICES. ACCORDING TO THE CENTRAL BANK OF JAPAN, THE RISE IN GLOBAL PRODUCER PRICES IS PARTLY DUE TO THE RISE IN OIL PRICES AS A RESULT OF THE MIDDLE EAST CONFLICT AND PARTLY DUE TO THE “POSITIVE GLOBAL DEMAND SHOCK” FOR AI-RELATED COMMODITIES. THE REPORT STATES THAT THE SPILLOVER EFFECTS OF AI DEMAND WILL PERSIST OVER TIME. AT THE SAME TIME, DOMESTIC INFLATION IN JAPAN MAY CONTINUE TO FACE CONTINUING UPWARD PRESSURE, WITH THE EFFECT OF HIGHER IMPORT COSTS ASSOCIATED WITH THE FALL OF THE YEN。