(Bloomberg) -- Morgan Stanley’s chief executive officer for Asia said Tokyo is catching up with rival financial hubs in Asia as its economy crawls out of decades-long deflation, boosting the potential for managing financial assets.

The Bank of Japan’s historic monetary policy shift means households will now start to move assets out of bank deposits and into financial instruments, Gokul Laroia said in an interview Wednesday on the sidelines of an event organized by the Wall Street bank in Tokyo. That could potentially create a “very large” asset management industry, he said. 

“It is catching up,” compared with Singapore and Hong Kong, he said. “There’s no question about that.”

In Tokyo, rising optimism over the future of Japan’s markets has sent stocks soaring while central bank actions have energized the bond market, helping global investment banks make more money through trading. Hedge funds are poaching yen rates traders from banks, while the latter are also competing among themselves to recruit dealers from rivals or raise pay to retain their workforce.

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Laroia said he sees the yen ultimately strengthening towards 140 against the dollar over the next year to 18 months, as the interest rate differential between the US and Japan could narrow to the currency’s advantage, he said. That should also be positive for capital flows, he said. 

“There is going to be an inflection,” said Laroia, also Morgan Stanley’s co-head of global equities. US rates will fall over the course of this year or next, sapping the dollar, whereas those in Japan are likely to go higher because “inflation is more entrenched” in the Asian economy, he said.

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