For over six decades, Japan had been maintaining that it will "conclude a peace treaty with Russia "contingent on the resolution of the Northern Territories issues" - a group of islands off the coast of Hokkaido. This commitment came about at the summit level talks between Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin in Moscow on April 29, 2013. This is a great departure in Japan's previously held stance and has rekindled hope that both the countries will conclude a peace treaty and will settle their territorial disputes.
Northern Territories are known as the Kuriles Islands in Russia and is a contested area between the two countries since the end of the World War II. The Soviet Union in 1956 had offered Japan to hand over two Islands (Shikotan and Habomai) and retain the remaining two (Kunashiri and Etorofu) in exchange of a peace treaty. The nationalists in Japan had opposed such a deal on the sovereignty of the islands at that time and the issue had been lingering ever since.
However, changing realities are pushing Moscow and Tokyo to settle the issue. Russia wants to develop its far east including the contested territories through foreign investment. Likewise, Japanese investors too would like to invest in the islands but have not got the state's backing. Japan is averse to any development works on the islands and has objected to the participation of South Korean and Chinese companies on Russian bid. A mutually agreed settlement will ease Russian efforts to develop infrastructure on the territories. Secondly, following low demands of its natural gas in recession hit Europe, Russia is in search of another market. Post-Fukushima, LNG demands remain high in Japan as most of its nuclear reactors remain dormant. Russia quite clearly eyes Japanese LNG market but has to compete with the US' shale gas, which remains a favourite option for the Japanese entrepreneurs even though transportation costs remain high.
