Bank of Japan Warns AI Poses Risks to Banking System

The Bank of Japan warned on October 23 that artificial intelligence creates increasing risks for the national banking system through potential market shocks and cybersecurity threats. In its semi-annual report, the central bank noted that Japanese banks have expanded lending to foreign non-bank financial institutions that fund AI hyperscalers.

The bank cautioned that if AI profitability fails to meet market expectations, a global correction could trigger portfolio adjustments that negatively impact Japanese stock prices. Beyond market volatility, the report characterized the misuse of generative AI in cyberattacks as a material macroprudential risk that could spread across multiple financial institutions.

While the Bank of Japan identified no major financial imbalances, it highlighted concerns regarding accelerating property price growth in three major metropolitan areas. The bank urged financial institutions to monitor risky asset prices as it continues to manage interest rates to combat inflation.