Big news from the Japanese cell phone industry today: Two of Japan’s top handset makers, namely Fujitsu and Toshiba, are in talks to merge their cell phone operations within this year. According to the Nikkei (“Japan’s Wall Street Journal” and usually a reliable source), negotiations already reached the “final stage”.

The joint venture, if it happens, will create Japan’s second largest cell phone maker (with a combined 18.7% domestic market share), following Sharp (26.1%). Fujitsu (the current No. 3 among Japan’s handset makers with over 5 million handsets shipped in 2009) is expected to become the main stakeholder in the joint venture. Toshiba is the eighth biggest (1.28 million units).

The motivation for the move is clear: all of Japan’s once proud handset makers are in big trouble, being under pressure from the success of foreign-made smartphones entering their once closed home market and facing a rapidly shrinking domestic customer base.

As in the deal between Casio, NEC and Hitachi (which all merged their cell phone operations on June 1 to become NEC Casio Mobile), Fujitsu and Toshiba hope to reduce costs and boost competitiveness. I wouldn’t be too surprised to see both companies announcing international expansion plans (as NEC Casio Mobile already did) soon.