Three megabanks expand foreign-currency liquidity to brace for Middle East risk

2026-08-08

Racing to secure foreign currency funding

MUFG Bank and the other megabanks are stepping up efforts to secure foreign-currency liquidity. Their combined balance of foreign-currency deposits and market funding stood at $1.2536 trillion, or about 198 trillion yen, at the end of June, up 18% from the end of March 2025. They are preparing for a situation in which client companies could suddenly find it harder to raise foreign currency, amid worsening conditions in the Middle East.

Foreign-currency liquidity refers to the funding capacity banks can draw on to supply dollars and other foreign currencies when needed. It serves as an important safety net when companies with overseas operations run into financing trouble.

Market funding also expands

The three megabanks together had about $1.06 trillion at the end of March 2025. Over the following 15 months, they added more than $190 billion. While direct comparison is difficult, Bank of Japan statistics covering major banks have not confirmed an increase of the same scale at least since 2010.

MUFG Bank increased its balance by 32% to $466 billion. It more than doubled its market funding balance, including yen-swapping transactions that convert yen funds into dollars. Foreign-currency deposits accepted from customers rose 8%. Sumitomo Mitsui Banking Corp. and Mizuho Bank also increased their foreign-currency funding.

Middle East risk and investment demand

The United States and Iran clashed militarily at the end of February, and talks aimed at resolving the confrontation have repeatedly advanced and stalled. Executives at the megabanks say they had been preparing for situations in which markets are disrupted and client companies and others find it harder to raise dollars.

Going forward, dollar demand will also arise from investment in the United States that the Japanese and U.S. governments agreed on in exchange for tariff cuts. The Federal Reserve is currently in a rate-cutting phase, and dollar funding costs have started to fall after peaking in 2024. It is believed there was also an aim to secure funds while funding conditions are favorable.

Companies are also stepping up preparations for Middle East developments. Commitment lines and loan facilities that allow firms to draw yen funds from banks within a set limit are increasing sharply. According to the Bank of Japan, the committed amount at the end of June was up 6 trillion yen from the end of January, before the U.S.-Iran military clash. The pace of increase was the largest since the COVID-19 pandemic in 2020.

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