AI in action · Markets

The Bank of Japan Stress-Tested a Fall in AI Profit Expectations. Its Banks Lend to the Data Centres and Funds Behind AI

The Bank of Japan's October 2026 Financial System Report stress-tests a fall in expectations for the profitability of AI investment. Japanese banks have made loans to foreign funds and to data centres "focus segments," 9% and 3% of their overseas lending. The report says such a shock could be amplified by non-bank investors abroad and spill over to Japan. It also warns frontier AI could raise the speed and scale of cyberattacks.

Oct 24, 2026

Twice a year the Bank of Japan publishes a Financial System Report, its assessment of what could go wrong for Japanese banks and markets. The October 2026 edition, released on October 23 with data to the end of September, names the AI investment cycle as one of the three main uncertainties, alongside the Middle East and the financing of that investment. It says Japanese stocks "could face adjustment pressure if profits do not expand in line with large-scale AI-related investments by hyperscalers," and that if expectations for the profitability of AI investment fell, "shocks could be amplified, mainly through portfolio adjustments in the foreign NBFI sector," meaning non-bank financial institutions such as hedge funds and private credit funds, with effects that "could spill over to Japan."

The report traces the channel step by step. Hyperscalers have traditionally financed data centres from their own cash, but have "increasingly sought to secure rights to use third-party data centers via long-term lease commitments," so that outside lenders and investors fund the part the tech companies do not. The share of AI-related stocks in the portfolios of hedge funds running global equity strategies "has been increasing." Japanese banks are exposed on both sides: lending to foreign funds accounts for 9% of their total overseas lending and lending to data centres for 3%, small shares, but ones the BoJ says have become "focus segments for major banks."

Two specific risks are flagged for the data-centre loans. Some projects are "heavily reliant on individual hyperscalers for rental income," so the loan is effectively a bet on one tenant renewing, and the graphics processors inside them "could face obsolescence within a short period," which shortens the life of the collateral. For the first time the BoJ's macro stress test includes "a decline in expectations regarding the profitability of AI-related investment" as a scenario; it concludes that banks have enough capital to absorb it. Reuters noted that the central bank sees no major financial imbalances, with its policy rate at 1.25%, a 31-year high, after last month's increase.

A separate box looks at the technology itself as a source of risk. Advances in "frontier AI" could "increase the speed and scale of cyberattacks," the report says, and cyber incidents are now "a material risk from a macroprudential perspective," a phrase central banks reserve for threats to the system rather than to individual firms. The BoJ asks banks to treat the two AI risks together: the one in their loan books and the one in their networks.

The report does not forecast an AI correction, and it is careful to call the exposures limited. Its value is in the map. Japan's banks do not need to own a single AI share to be exposed to one, if they lend to the data centres that house the chips and the funds that own the stocks, and the BoJ has now published the percentages.

Sources: Bank of Japan — Financial System Report (October 2026), Oct 23, 2026; Bank of Japan — Financial System Report (October 2026), full text (PDF); Reuters via Investing.com — Bank of Japan warns of risks from AI market shock, cyberattacks (Oct 23, 2026)