BOJ's deputy chief flags AI's possible impact on neutral rate

Artificial intelligence (AI) is causing a surge in demand that is fueling inflationary pressure and long-term interest rates, with an impact that may affect the neutral rate of interest, according to Bank of Japan Deputy Gov. Shinichi Uchida. "First, it is a big positive demand shock, which has put upward pressure on the economy and prices. Second, it could affect the supply side, perhaps positively by raising productivity and enhancing capital stock accumulations, which might in turn affect R-star," Uchida said in a speech Monday. R-star is the rate of interest that neither stimulates nor restrains the economy before adding inflation. The neutral rate is essentially R-star plus inflation.