Japan has reached an agreement for a $55 billion investment in the United States, with CitiGroup and JP Morgan Chase participating as funding providers. The structure involves major U.S. banks lending dollars while the Japanese government guarantees the risk of losses. This marks a shift in private funding from Japanese banks in the first phase to U.S. banks in the second phase, alleviating one of the biggest challenges in securing large amounts of dollars for the investment.
The Nihon Keizai Shimbun reported on the 26th that Citi and JP Morgan will provide funding for the second phase of the U.S. investment project alongside the Japan Bank for International Cooperation (JBIC). The Japanese Ministry of Finance also announced on social media that it is considering loans from foreign banks in addition to JBIC's financing.
The second phase includes plans to construct next-generation nuclear power plants and gas power plants in the U.S., with a total project cost of up to 12 trillion yen, double that of the first phase. Citi and JP Morgan will initially lend approximately 500 billion yen (about $4.5 billion) for two gas power plants, with each institution covering one-third of the loan amount, while Japanese private banks will not participate.
Going forward, the plan is to increase the loan amount as new funding needs arise. By involving U.S. banks with ample dollar resources, the burden on Japanese banks to secure large amounts of dollars directly is reduced. The Japanese Ministry of Finance stated that the participation of U.S. banks will facilitate foreign currency procurement.
The biggest challenge for Japan's investment in the U.S. has been how to secure the massive amounts of dollars needed. Based on projects agreed upon by both countries, it is estimated that private banks need to procure over 4 trillion yen in dollars. As of the end of March, the overseas loan balance of Japan's three major banks—Mitsubishi UFJ Bank, Sumitomo Mitsui Trust Bank, and Mizuho Bank—was approximately 140 trillion yen. This means that about 30% of their existing overseas loans will be added solely for the U.S. investment.
If Japanese banks are to secure dollars on their own, they would need to increase foreign currency deposits or purchase dollars in the market. Continued dollar purchases could exert further downward pressure on the yen. The private loans for the first phase of the project, which began in April, were handled by the three major banks. They have expressed concerns to the government that securing large amounts of dollars will be essential for continuing loans after the second phase.
The three major banks have been discussing medium- to long-term dollar procurement strategies with the Ministry of Finance and the Bank of Japan, seeking support. They have explored options such as utilizing the special account for foreign exchange funds, dollar funding from the Bank of Japan, and expanding JBIC's loans. While the immediate burden has been reduced with the participation of U.S. banks, not all dollars needed for the entire U.S. investment have been secured.
The Nippon Export and Investment Insurance (NEXI) will guarantee the loans from U.S. banks, reducing the risk of losses. Citi and JP Morgan will earn profits from Japan's investment projects in the U.S. under the Japanese government's guarantee. However, it remains unclear how much profit will actually return to the Japanese companies responsible for local operations.
The U.S. investment was agreed upon last July as a condition for reducing the previously imposed 25% tariff rate on Japanese automobiles and other products. According to the agreement, once the U.S. President selects the investment targets and notifies Japan, the Japanese side must secure dollar funding within 45 business days. The financing related to the gas power plants in the second phase, agreed upon in mid-March, is expected to be executed within that timeframe.
After the U.S. Supreme Court ruled that mutual tariffs were invalid, the Trump administration announced new tariffs on the 23rd to maintain high tariff rates. The rate applied to Japan has been set at 12.5%.
Japan is ahead of South Korea and the European Union in concretizing multiple investment projects and funding structures. With South Korea also beginning its U.S. investment in the shipbuilding sector on the 23rd, Japan's approach of combining U.S. bank participation with government guarantees to share the burden of dollar procurement may serve as a reference for South Korea's investment efforts in the U.S.
* This article has been translated by AI.
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