The Bank of Tokyo-Mitsubishi UFJ (BTMU), Japan's largest lender, has set up a $500 million multicurrency Islamic bond programme through its Malaysian unit, aiming to become the first Japanese commercial bank to use sukuk for fundraising.

The programme will be Malaysia's first yen-denominated sukuk and one of the first to be setup by a conventional bank, marking a significant step towards pushing sukuk into the mainstream, with the Middle East unit of HSBC having first tapped the market in 2011.

BTMU, part of the Mitsubishi UFJ Financial Group Inc, will seek to raise funds via sukuk in U.S. dollars, yen and ringgit with maturities of up to 10 years, the lender said in a statement on Thursday.

"Islamic finance is a segment where we see great growth potential and it has become one of the key pillars in the bank's overall growth strategy for this region," BTMU said.

BTMU did not specify a date for the first issuance from the programme but said it expected strong demand for the initial tranche, which would be used to grow the bank's portfolio of sharia-compliant loans.

An accommodative tax regime and strong demand from local investors have made Malaysia an attractive market for issuers from Singapore, Indonesia and the Middle East, although the sukuk market saw a slump in issuance last year due to uncertainty ahead of national elections and worries about the Federal Reserve's monetary policies.

Malaysia has the world's largest and most liquid sukuk market, accounting for two-thirds or $178 billion of global sukuk volumes, but the market saw a 26 percent contraction from 2012 levels, credit ratings agency Moody's said in a report.

Moody's estimates issuance will pick up by 10 percent over 2014 and 2015.

A sukuk from BTMU would also help Malaysia on its efforts to globalise its Islamic capital markets which remain dominated by local-currency deals. International firms represent less than 10 percent of total issuances.

The BTMU programme uses an Islamic finance structure known as wakala bi al-istithmar, a format that would use tangible assets and commodity-linked receivables from its Malaysia subsidiary to underpin the transaction.

Kuala Lumpur-based RAM Ratings assigned an AAA or "stable" rating to the programme, which has its parent company as a guarantor. CIMB Investment Bank Bhd and Mitsubishi UFJ Securities International Plc are advising the deal.