Hitachi said the decision was made from the “viewpoint of economic reality.”
The firm had been in long-running talks with the UK government about funding.
Business and Energy Secretary Greg Clark said the government had offered to take a one-third stake in the project and “was willing to consider providing all of the required debt financing to complete construction.”
He added: “Despite this potential investment, and strong support from the government of Japan, Hitachi have reached the view that the project still posed too great a commercial challenge.”
Wylfa is being delivered through Hitachi’s subsidiary Horizon Nuclear Power.
Duncan Hawthorne, CEO of Horizon Nuclear Power said: “We have made very strong progress on all aspects of the project’s development, including the UK design of our tried and tested reactor, supply chain development and especially the building of a very capable organisation of talented and committed people.
“We have been in close discussions with the UK Government, in cooperation with the Government of Japan, on the financing and associated commercial arrangements for our project for some years now.
“I am very sorry to say that despite the best efforts of everyone involved we’ve not been able to reach an agreement to the satisfaction of all concerned.
“As a result we will be suspending the development of the Wylfa Newydd project until a solution can be found.
“In the meantime we will take steps to reduce our presence but keep the option to resume development in future.
“Clearly this will have a significant impact for all involved with our project.
“We will look to minimise this as much as possible as we move into this next phase and we will begin consultation on the implications immediately with our staff.
“We will also engage closely with the many international and UK-based stakeholders who have strongly supported the project’s development.”