Bank of Japan says global AI demand may keep sticky pressure on inflation

3 (Reuters) - The Bank of Japan said global AI-related demand may exert lasting upward pressure on Japan's inflation, a signal that could support the case for a near-term interest rate hike, according to the full version of its quarterly outlook report. The central bank said artificial intelligence should boost productivity and ease prices over the medium to long term as workers and firms adapt. In the short term, it said inflationary effects of an AI-driven investment boom are likely to outweigh productivity gains as stronger investment lifts demand. Producer prices have risen globally in part from oil prices tied to the Middle East conflict and from a positive global demand shock for AI-related goods, the report said. Spill-over effects of AI demand, together with import-cost pressure from yen declines, could keep persistent upward pressure on domestic inflation. The BOJ said its estimates suggest AI-related demand can exert a sticky and lasting upward influence on consumer inflation excluding fresh food and fuel. The BOJ raised interest rates to a 31-year high of 1% in June and has signalled readiness to keep pushing up borrowing costs. It also said Japanese households as a whole benefit from higher rates because deposit holdings substantially exceed outstanding borrowing.