The Bank of Japan says rising AI-related risks, from cyberattacks to a possible market shock, could spill over to Japan's banking system. The central bank sees no major financial imbalances but wants close attention paid to rising property and stock prices.
The Bank of Japan warned on Friday of rising risks caused by AI, including growing cybersecurity threats and potential market shocks. In its semi-annual report on Japan's banking system, the central bank said these risks could spill over to the country's banks.
Foreign lending may leave Japan more exposed to global markets
Japan's financial system may have become more susceptible to global market fluctuations, the BOJ said, because domestic banks have steadily increased lending to foreign non-bank financial institutions, which are big hyperscaler funders. These institutions operate in the "shadow banking" sector, which includes private credit providers and private equity funds.
If hyperscalers fail to meet lofty market expectations, the resulting global market correction could hit Japanese stock prices that have risen on hopes of strong profits in AI-related sectors, according to the report.
Property prices and rates draw scrutiny
The BOJ said it did not see any major financial imbalances. Even so, rising property and stock prices warranted careful attention given still-low interest rates. Property price growth has accelerated in Japan's three major metropolitan areas, with surging construction costs and labour shortages adding to pressure from strong demand, including from foreign investors.
Last month the BOJ raised interest rates to a 31-year high of 1.25% and signalled its readiness to keep increasing borrowing costs to prevent inflation from overshooting its 2% target. It has also stressed the need to scrutinise banks' lending behaviour and financial conditions when deciding the timing and pace of future hikes.
Cyber incidents flagged as a macroprudential risk
AI-powered cyberattacks have triggered website shutdowns across the globe, and the BOJ urged financial institutions to better prepare for threats including the misuse of generative AI. According to the BOJ report, cyber incidents are "also a material risk from a macroprudential perspective".
Source: Investing.com (Reuters)
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