Apple is talking with Japan's top carrier, DoCoMo, as well as No. 3 carrier Softbank. Apple CEO Steve Jobs recently had a sit-down with DoCoMo chief executive Masao Nakamura in San Francisco to discuss a deal, the Wall Street Journal reported.

"The negotiations are not going smoothly, as Apple's conditions are extremely hard to meet," a source familiar with the meeting told Reuters. "The ball is in Apple's court right now."

Carriers Will Blink First

Apple appears to be ready and willing to play hardball in Japan. While it clearly has shown a preference to cut exclusive deals with the top carrier in a country -- that means DoCoMo -- press reports suggest that Softbank is extremely interested in becoming the iPhone carrier, leverage Apple would use to bring DoCoMo to its terms.

Apple has been talking to Softbank for some time, and the No. 3 carrier is making an aggressive push to take customers away from its larger competitors. The Wall Street Journal suggested Jobs is feeling quite smug about Japan. "A person familiar with the situation said Apple doesn't expect to have any difficulty concluding a deal with a Japanese operator," the Journal reported.

Japan is the world's second largest economy and one with a healthy appetite for the latest in cell phones. It boasts 100 million cell phone users, who buy new phones every two years on average. Whichever carrier gets the Apple deal will certainly sell a lot of phones.

But for Apple, Japan is a critical part of the global iPhone strategy to sell 10 million of the devices by the end of 2008. The question is which company will blink first.

Tough Talk in China Too

"My bet is that the carriers blink first," Tim Bajarin, principal analyst with Creative Strategies, said in an e-mail. "The Japanese would snap up legitimate iPhones in large numbers and the carrier associated with it would get the cache and huge media attention that comes with being the one who carries it," he said. "And, neither carrier wants to lose this to the other as DoCoMo and Softbank are fierce rivals."

Apple has faced tough negotiations in China, where it is talking to top carrier China Telecom. A smaller carrier, China Unicom, has expressed interest in becoming China's iPhone carrier. "Our business model does not entail sharing revenue with terminal producers -- we don't share revenue. That's a Chinese rule," a Chinese executive was quoted by Reuters as saying.

If that turns out to be a Japanese rule, as well, Apple might have to at least cut back the amount of revenue it demands from its Asian partners.

The phone Apple winds up selling in Japan might prove to be the rumored 3G iPhone. DoCoMo doesn't run a GSM or Edge network, as all current iPhone carriers do, so Apple will have to deliver an iPhone compatible with the UMTS or HSDPA standards.