Bank of Japan: AI Could Influence Long-Term Interest Rate Levels

AI could alter the level at which interest rates settle in the long term, Uchida said. According to him, technological advancements may stimulate demand and also influence supply by increasing productivity and boosting capital investments.

These changes could affect the neutral interest rate—the level that neither accelerates nor slows the economy. If it rises, central banks may ultimately need to set rates higher than investors previously expected to curb inflation and avoid unnecessary economic slowdowns.

In Japan, the yield on benchmark 10-year government bonds stood at around 3.09% on Monday and remained close to a three-decade high. The yield on 30-year bonds reached a record 4.235%. The rising yield on Japanese government bonds reduces the advantage of foreign bonds, which for years had encouraged Japanese investors to purchase them. This could lower demand for U.S. Treasury bonds.

Last week, ING strategists stated that AI could account for roughly one-fifth of the recent rise in long-term bond yields. Among the reasons, they cited large borrowings to finance data centers and other infrastructure, as well as expectations of increased productivity and economic growth.