Reuters quoted an unidentified source as saying that the bank is in talks with Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group and Sumitomo Mitsui Financial Group (SMFG) in addition to a few regional banks.
Citigroup is also reworking on its overseas strategy to focus on growing markets while going slow in saturated countries such as Japan.
The US bank will keep corporate and investment banking and trading businesses in Japan, the source told Reuters.
Citigroup has 33 branches, 3.6tn yen ($35bn) in deposits and 356.2bn yen in outstanding loans in Japan as of the end of March.
Japanese regulators penalized the bank three times between 2004 and 2011 for lack of monitoring on money laundering.
The group has earlier withdrawn from Spain, Greece and Turkey.
Citi’s reduction of operations in Japan will follow similar moves by HSBC and Standard Chartered in the past.
