Tesco is to shell out £40m to exit its Japanese business after admitting defeat in its nine-year push to become a major player in the country.
The supermarket giant last year said it would sell its smallest international operation, which has 117 Tsurakame and Tesco stores in the greater Tokyo area, because the business was not "sufficiently scalable".
It has struck a deal with Japan's biggest retailer Aeon to sell half the business for a nominal sum and inject £40m of restructuring costs into a joint venture prior to its exit.
Tesco, which is battling falling sales in the UK, said it will have no further exposure to the Japanese business after the £40m injection.
Clive Black, an analyst at Shore Capital, welcomed the removal of a distraction for Tesco, although he said having to pay to exit the market was a disappointment.
He added: "Given ongoing trading losses of about £30 million after approaching a decade in the market, Tesco appears to our minds to have taken the correct approach with a funded withdrawal."
Shares rose slightly today.
Tesco moved into Japan nine years ago with the acquisition of C2 Network, which at the time owned 78 convenience stores and was valued at £173m, but struggled to grow the business to the size needed to make it profitable.
The grocer has some 1,400 stores in Asia and is understood to be planning to focus on its larger businesses such as in China, Korea, Malaysia and Thailand.
Tesco chief executive Philip Clarke said: "We are very pleased to announce this deal with Aeon today and are confident that this will deliver the best outcome for our staff, for our customers in Japan and for our shareholders."
Other major Western retailers that have failed to crack Japan include US supermarket juggernaut Walmart and French chain Carrefour.