Bank of Japan Deputy Governor Shinichi Uchida said on Monday that the global adoption of artificial intelligence has increased demand, lifted asset prices and made financial conditions more accommodative.

According to him, markets could face a correction if expected AI-related profits do not materialise.

Uchida described the expansion of AI as a major positive demand shock that is already affecting economic activity and prices.

He said a correction could occur if the earnings generated by AI investment do not eventually justify current valuations.

He also noted that major AI-related companies are issuing large amounts of debt to finance expansion, which is adding upward pressure on long-term interest rates.

Companies worldwide are investing billions of dollars in AI infrastructure, including data centres, advanced chips, computing systems and energy capacity.

The spending has coincided with a sharp rise in the valuations of companies seen as beneficiaries of the AI boom.

Uchida said the Bank of Japan is monitoring AI’s effects beyond financial markets.

Higher productivity and greater investment in productive capacity could raise the economy’s potential growth and influence the interest-rate level considered appropriate over the longer term.

He added that strong AI-related demand could also contribute to inflation.