Adds context on investor activity and Japan's real estate industry

By Miho Uranaka and Anton Bridge

TOKYO, April 4 (Reuters) - Morgan Stanley MS.N is raising about 100 billion yen ($684 million) for a Japan-focused real estate fund, two people familiar with the matter said, highlighting investor interest in property as the world's fourth-largest economy emerges from years of deflation and standstill prices.

The Morgan Stanley-managed fund is due to close in June and expected to raise at least 100 billion yen based on current investor commitments, according to the people, both of whom declined to be identified because the information hasn't been made public. The final size of the fund could change by the closing, the people said.

Investment will centre on offices and multi-family residential buildings in major cities, as well as logistics and hotels, one of the people said.

Morgan Stanley declined to comment. Details of the fund are reported here for the first time.

The U.S. firm is the latest global asset manager to set its sights on Japanese real estate, an asset class that has come back into favour after years of stop-start economic growth, flat wages and zero inflation.

The investment case has changed sharply over the last year, most notably after the central bank raised interest rates for the first time in 17 years last March.

Prices, including of real estate, are now going up: land prices across Japan grew 2.7% in 2024, the fastest pace since 1991, after which the country's "lost decades" began, a land ministry survey showed.

"We see great potential in real estate investment in an inflationary environment," said Ikushin Tsuchida, managing director at Brookfield Asset Management. "Market dynamics are changing," he said.

At the same time, in a corporate governance push, Japan's listed companies are looking to improve their use of capital and sell off some property holdings.

(Reporting by Miho Uranaka and Anton Bridge; Editing by Dave Dolan, Chang-Ran Kim and Sonali Paul)

((Anton.Bridge@thomsonreuters.com))