Barclays is understood to be in the final stages of negotiating a capital tie up with one of Japan’s largest financial groups in a deal that could see a 100 billion yen (£470 million) injection of cash for the battered British lender.

Sources close to the proposed deal suggest that the capital infusion to Barclays stretched balance sheet will come from Sumitomo Mitsui Banking Corporation (SMBC).

The capital injection is expected to take the form of a private placement of shares that would leave Japan’s third largest financial giant with a stake of two or three per cent in the British lender. Barclays is not understood to be negotiating any similar deals with other Japanese or foreign banks.

Japan’s largest banks, which have emerged relatively unscathed from the US sub-prime mortgage collapse told The Times earlier in the year that they stood ready to become the “silent investment partners” of any large western banking names that came to them for help.

Sources at the top three Japanese megabanks said at the time that they had readied a $10 billion cash pile to effect precisely the sort of capital injection believed to be under negotiation between SMBC and Barclays. In January, Mizuho Financial pumped around Y130bn (£650m) of capital into Merrill Lynch.

The Japanese deal comes in the wake of speculation which began earlier in the week that Barclays would turn to some of Asia and the Middle East’s largest sovereign wealth funds in its quest to restore its capital ratio in the aftermath of the US sub-prime mortgage debacle. Barclays is reeling from around £2.5 billion in losses arising from the US mortgage crisis and resulting credit crunch.

The capital tie-up deal between Barclays and SMBC is expected to see the two banks deepening their existing alliance in Asian operations. The deal may include strengthened ties between the asset management businesses of the two institutions.

Japan’s capital markets are rapidly emerging as the favoured safe-haven for stricken US and European banking names. This year has already broken records for so-called Samurai Bond issuance – yen debt issuance by foreign firms – with names like RBS, Citigroup and UBS all understood to be planning large capital raisings on the Japanese debt market.

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