Tokyo to provide $3.3 billion loan to Kyiv using frozen Russian assets

07/19/2024 / By Richard Brown

Tokyo will provide 520 billion yen ($3.3 billion) in loans to Kyiv, financed by proceeds from Russian assets frozen under Western sanctions, according to a report by Kyodo News on Wednesday, July 17.

This figure represents approximately six percent of the substantial loan agreed upon by the Group of Seven (G7) nations during their summit in Italy in June.

At the summit, G7 leaders reached a consensus on utilizing interest from the frozen Russian assets to finance a $50 billion loan intended to assist Kyiv in acquiring weapons and rebuilding damaged infrastructure. (Related: EU okays transfer of $1.5B to Ukraine drawn from frozen Russian assets.)

Japanese authorities are expected to expedite the necessary procedures to finalize their share of this financial support by the end of the year, as reported by Kyodo.

G7 finance ministers and central bank officials are anticipated to approve the loan package, which will see the U.S. and the EU each providing $20 billion, while Japan, the U.K. and Canada will contribute a combined $10 billion, at a G7 meeting scheduled to take place in Rio de Janeiro later this month.

Following the escalation of the Ukraine conflict in February 2022, Western nations moved to freeze nearly $300 billion in assets belonging to the Central Bank of Russia.

The majority of these frozen assets are held in the EU, particularly with the Belgium-based depositary and clearing house Euroclear.

In May, Brussels approved a plan to utilize the profits generated from these frozen assets to support Ukraine’s recovery and military defense. Under this plan, 90 percent of the proceeds are designated for an EU-managed fund dedicated to Ukrainian military aid, while the remaining 10 percent will be allocated to other forms of support for Kyiv.

Earlier this month, Ukrainian Defense Minister Rustem Umerov indicated that the funds would be directed towards bolstering Ukraine’s defense capabilities, supporting local manufacturers, and predominantly used for purchasing ammunition and air defense systems.

Moscow has denounced these Western measures, arguing that military assistance prolongs the conflict. Russia has also condemned the freezing of its assets, describing the use of these funds as outright “theft.” Kremlin spokesperson Dmitry Peskov has previously warned that the expropriation of Russian sovereign funds could create a dangerous precedent and deliver a significant blow to the Western economic system. He emphasized that Moscow would inevitably retaliate by pursuing legal action against entities that access its frozen assets.

In response to these concerns, the Kremlin has asserted that it will continue to challenge the legality of the asset freezes and any subsequent utilization of these funds, maintaining that such actions undermine international financial norms and principles.

Japan also supports G7’s use of frozen Russian assets

Japan, not a NATO member, has faced criticism for its June decision to support the G7’s use of frozen Russian assets, a move experts argue may breach international law and strain relations with Russia. Japan’s motivation lies in securing robust U.S. support for its security interests, but this step introduces political, strategic, and legal complications, particularly as Ukraine faces significant internal challenges.

One potential fallout is the cancellation of Japan’s role in the Sakhalin oil and gas project, involving Gazprom and Japanese firms like Mitsui and Mitsubishi.

If Russia decides to end Japan’s involvement, it could also undermine peace treaty negotiations and territorial discussions that have stalled.

Japan’s support for Ukraine occurs against a backdrop of escalating military ties between China and Russia, which pose threats to Japan’s security. Russia might use Japan’s stance on Russian assets as a pretext to intensify military threats, potentially impacting Japanese interests like the Ryukyu Islands and Okinawa.

Additionally, Japan is concerned about North Korea’s expanding nuclear capabilities and ballistic missile development, while its own missile defense efforts lag. Japan faces a recruitment crisis in its military and is dealing with a high disapproval rating for Prime Minister Fumio Kishida, who may face leadership challenges that could shift Japan’s foreign policy.

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