A company spokesperson was reported by Japan's Kyodo news agency as saying the decision by Lion to discontinue the agreement reflects weaker-than-expected sales of hair colour products.
Lion will retain a reduced stake in the company and maintain its comprehensive alliance with Henkel under a cooperation agreement signed in 1999.
Lion's move comes just a couple of weeks after an announcement by Henkel that it would reorganise its research and development and sales structure in Japan.
The German manufacturer of chemical and everyday household products was said to be consolidating its activities by moving more than 100 sales staff to its Asia-Pacific R&D base in Yokohama, where about 30 workers currently develop products such as industrial adhesives for the automobile and electronics sectors.
Henkel appeared to be refocusing and strengthening its automotive and electronics industry actvity and expanding its research structure in Japan, reportedly because many leading automakers and electronics firms are located there and also because of Japan's proximity to China.
Henkel generated about €10 billion in sales in 2003, some 30 billion yen (nearly €225 m) of which is believed to be from Japan.