Sengoku Raiden Championships is expected to formally announce the heavyweight fight in the coming days.
Herman, 19-2, most recently defeated Michael Kita at Bellator 31 in September, while Nakao, 9-2 (2 NC) defeated Henry Armstrong Miller at Sengoku Raiden Championships 12 in March.
The year-end Sengoku event is scheduled to take place at the Ariake Coliseum in Tokyo, and will air in North America on HDNet.
Also scheduled for the event is the welterweight grand prix final between Yasubey Enomoto and Keita Nakamura. For more information on the other big names scheduled to compete on the card, click here.