Daiei faces an uncertain future

Its efforts failed when Daiei pulled out of the negotiations.

However since then slack consumer spending and falling high street prices have driven two major Japanese retailers, Sogo and Mycal, to bankruptcy.

Daiei was only rescued from the same fate by a bailout from its bankers earlier this year.

Reluctant consumers

Japanese shoppers' trust in food retailers has also taken a blow from the Snow Brand scandal.

Snow Brand Food admitted relabelling foreign meat as domestic to side-step veterinary safety regulations over mad cow disease and qualify for state handouts.

"It will be a long-term story to see if Wal-Mart can take advantage of the merits of the Japanese market", said Yasuyuki Sasaki, retail analyst at Credit Suisse First Boston in Tokyo.

In its favour, Wal-Mart buys many of its goods from nearby China, spending $10bn there last year.

The US giant has expanded abroad rapidly since its first overseas store opening in Mexico in 1991.

In only a decade, it has gained 1,170 stores in Latin America, Britain, Germany, Korea and China.

Wal-Mart's investment in the Japanese retailer is part of a three-way deal to strengthen Seiyu.

Another shareholder, Sumitomo Corp, has paid Seiyu 5bn yen to increase its shareholding to 15.6% from just over 10%.