Bank of Japan Deputy Governor Shinichi Uchida said artificial intelligence is triggering a surge in demand that is pushing up inflation pressure and long-term interest rates, with its effects potentially reaching the neutral rate.

"First, this is a significant positive demand shock, putting upward pressure on the economy and prices. Second, it may affect the supply side, perhaps through positive effects from higher productivity and stronger capital stock accumulation, which in turn could influence the real neutral rate," Uchida said in a speech on Monday.

The real neutral rate refers to the interest rate that neither stimulates nor restrains the economy when inflation is excluded. The neutral rate is essentially equal to the real neutral rate plus the inflation rate.

The deputy governor's remarks suggest the spread of AI could initially force central banks around the world to raise their neutral rates, though the long-term impact remains unclear.

The comments come as economists and market participants try to assess how quickly interest rates will rise and how far the Bank of Japan will go in raising rates. At its September meeting, the central bank raised its policy rate to 1.25%, and the market widely expects another rate hike before the end of the year.

Uchida noted that while growing demand for AI has pushed up stock prices and made financial conditions looser, large-scale bond issuance by technology companies has pushed up longer-term yields, tightening financial conditions.

Similarly, longer-term structural effects could push policy in different directions.

"AI may quickly make certain forms of human capital obsolete, especially skills designed for mental labor," Uchida said. "It could also worsen social inequality, because people with more technical skills and flexibility may benefit more than others."

He added that these conflicting effects require careful study, and their overall impact on the real neutral rate remains difficult to assess. "We do not have a clear answer at this point," he said.