The 25-year-old right-hander narrowed his choice to the Yankees and Los Angeles Dodgers, who were offering more overall money but not an opt-out clause. His contract with the Yankees includes an escape clause after four years.
The Yankees also have a $20 million bill for negotiating rights due to the Rakuten Golden Eagles, Tanaka's home team in Japan.
In terms of length and total potential earnings, Tanaka's deal is the fifth-richest for starting pitchers behind Dodgers left-hander Clayton Kershaw ($215 million), Detroit Tigers right-hander Justin Verlander ($180 million), Felix Hernandez ($175 million) of the Seattle Mariners, and Yankees left-hander CC Sabathia ($161 million).
Tanaka had a 99-35 record with a 2.30 ERA and 1,238 career strikeouts. He's lauded for his fiery edge and teammates in Japan said he is likely to be more successful than pitchers who entered Major League Baseball from Japan in the past because of that competitive nature.
In total, the Yankees' $175 million tab for Tanaka is a record for a free agent pitcher. With his contract on the books, Tanaka pushes the Yankees payroll over $200 million for next season.
Last week, Japanese news service Nikkan Sports reported that the Yankees, Los Angeles Dodgers, Arizona Diamondbacks, Chicago White Sox and Chicago Cubs extended contract proposals to Tanaka worth more than $100 million for six years.
Nikkan listed the Diamondbacks's bid at six years for close to $120 million.
The right-hander was highly coveted, after posting a 24-0 record with a 1.27 ERA last season for the Rakuten in the Japanese league.
The signing deadline was Friday at 5 p.m. ET. Tanaka took a physical that was shared with all teams before negotiations began. His signing is not expected to be subject to further medical evaluation.
Yu Darvish signed a six-year, $60 million deal with the Texas Rangers last year, but the team also coughed up $51.7 million for the uncapped posting fee. MLB recently set a maximum posting fee of $20 million for premium international free agents.
The Dodgers and Boston Red Sox could turn to the top remaining free agent pitchers on the market. The Angels and Diamondbacks are reportedly considering substantial offers to right-hander Matt Garza.