Bank of Japan's stability report puts the foreign shadow-banking sector at the centre of AI risk

Serguey Asael Shinder26 October 2026, 15:171 min read

The Bank of Japan's October Financial System Report judges the country's financial system stable on the whole, with banks holding sufficient capital and funding to withstand severe stress — including a repeat of the global financial crisis and a compound shock combining a geopolitical oil-price spike, a fall in AI expectations and a sharp rate rise at once. What the report newly emphasises is the foreign non-bank financial intermediary sector. As hyperscalers increasingly fund data-centre investment through bond issuance and long-term leases rather than internal cash, private funds and other foreign NBFIs have become prominent financiers, and the BoJ has refined its macro stress test to model shocks amplified by portfolio adjustments in that sector spilling into Japan. It also flags real-estate prices, with the Tokyo metropolitan area's pace of increase accelerating, and stock prices sitting in the "red" on its heat map while price-earnings ratios stay near their post-2008 average.

What it means

The through-line is that Japan's financial stability is now partly a bet on the profitability of AI investment made outside Japan. Domestic banks hold the risk indirectly — through lending to foreign funds and data centres, a focus segment for major banks drawn by wide spreads, and through the foreign NBFI sector's holdings of Japanese stocks and bonds. The BoJ is saying plainly that if expectations about AI returns deteriorate, the shock reaches Tokyo through portfolio channels it does not control. Pair that with a longer-term worry the report keeps returning to — a structural decline in domestic loan demand as the population falls, squeezing bank profitability — and the picture is of a stable system watching two very different clocks: a fast one driven by global AI financing, and a slow one driven by demographics.