UFJ is proving a desirable asset

The ruling removes a key obstacle to a planned merger between UFJ and Mitsubishi Financial, which would create the world's biggest bank.

Sumitomo, which agreed to buy UFJ's trust unit in May, had argued that UFJ should be forced to honour the deal.

A decision in Sumitomo's favour would have made it easier for it to press ahead with its own plans to buy UFJ.

Round two

UFJ decided not to sell its trust unit to Sumitomo after it started merger talks with Mitsubishi.

Sumitomo, which risks being relegated to third position in the Japanese banking league by the Mitsubishi-UFJ merger, launched a rival offer for UFJ earlier this month, valuing the bank at about 3.2 trillion yen ($29bn ; �16bn).

But Monday's court decision has not dented Sumitomo's merger ambitions.

After the ruling, the bank said it would deliver a 700 billion yen cash injection to UFJ if its takeover attempt was successful.

Analysts said Sumitomo may yet seek compensation from UFJ for refusing to sell its trust business.

"There are still some uncertainties," said Nozomu Kunishige, banking analyst at BNP Paribas.

UFJ, the smallest and least financially healthy of Japan's "Big Four" banks, is keen to join forces with a larger rival.