Morgan Stanley: BOJ interest rate hike to bolster yen

The CEO of Asia for major US investment bank Morgan Stanley says he expects the Japanese yen to strengthen against the dollar following US interest rate cuts and rate increases in Japan.

Gokul Laroia made the forecast in an interview with NHK last week.

Laroia said: "There is an expectation, just given the inflationary environment, that the Bank of Japan will start raising rates going forward. We think that the yen will, over the next 12 to 18 months, reverse and start strengthening against the dollar."

Although Japan's key Nikkei stock index has been stalled around the 38,000 level after briefly surpassing the 40,000 mark in March, Laroia expects investment from abroad will continue to push up stock prices.

He said: "Japanese corporations' behavior has changed dramatically from a corporate governance perspective, from a capital return perspective and, therefore, the kinds of returns that they're offering to the global investing community. So the interest in Japan, both from macro and micro reasons, is very high."

Laroia also said he expects the conditions to ultimately fuel a bullish period for Japan's stock market.