TOKYO (Reuters) - HSBC (HSBA.L: Quote, Profile, Research) (0005.HK: Quote, Profile, Research) said on Thursday it plans to start retail banking operations in Japan from January 2008, making Europe's largest bank the latest foreign player to target Japan's legion of wealthy individuals.

HSBC may face tough competition from large Japanese banks such as Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research) as well from U.S. firm Citigroup (C.N: Quote, Profile, Research), all of which are scrambling for a piece of Japan's estimated $13 trillion (6.4 billion pounds) in household assets.

The move also underscores the UK-based bank's desire to further expand in Asia. HSBC said on Monday it has agreed to buy a 51 percent stake of Korea Exchange Bank (004940.KS: Quote, Profile, Research), Korea's sixth-largest lender by assets, from U.S. private equity firm Lone Star (LS.UL: Quote, Profile, Research) for $6.3 billion.

HSBC said in a statement it planned to open branches in Tokyo, Osaka and other large Japanese cities, looking to tap into the millions of "mass affluent" in the world's second-largest economy.

About 6.3 million people in the Tokyo and Osaka areas fall into the "mass affluent" category, the bank said, meaning they have at least 10 million yen (43,000 pounds) in liquid financial assets.

Citigroup is also taking aim at that market. In July the U.S. lender relaunched its local unit as a Japanese bank, becoming the first foreign lender to receive approval to operate as a local entity. It also outlined plans to list its shares in Tokyo and double its retail banking branches to about 60 in the next few years.

HSBC, which has had a presence in Japan for more than 140 years, currently has a wholesale banking and securities business in Tokyo. The retail strategy will be part of an international personal wealth management service launched earlier this year.

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