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Island dispute and economic cooperation to headline Putin-Abe summit this week

Russian President Vladimir Putin's long-awaited visit to Japan may end up sorely disappointing his host Prime Minister Shinzo Abe.

Putin will be meeting Abe in the latter's hometown of Yamaguchi on Japan's southwest Thursday and then head to Tokyo on Friday, marking a fresh chapter in Abe's efforts to actively engage with the controversial Russian leader.

November 19, 2016: Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe at a meeting on the sidelines of the Asia-Pacific Economic Cooperation (APEC) Leaders' Meeting in Lima.
MICHAEL KLIMENTYEV / AFP / Getty Images
November 19, 2016: Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe at a meeting on the sidelines of the Asia-Pacific Economic Cooperation (APEC) Leaders' Meeting in Lima.

Headlining the agenda will be a 70-year old territorial conflict between Tokyo and Moscow that has prevented the two from formally signing a peace treaty after World War II. But while Abe is hoping for a concrete deal, Putin—hungry for foreign investment as the Russian economy struggles under the weight of Western sanctions—may divert talks to commercial matters instead.

Four volcanic islands, rich in natural resources and located in between Japan's Hokkaido Island and Russia's Kamchatka peninsula, make up the contested territory. Ownership terms were first settled between the two nations in an 1855 treaty but Russia then took control of the islands—called the Northern Territories in Tokyo and the Southern Kurils in Moscow—at the end of WWII, resulting in the deportation of tens of thousands of Japanese residents.

Diplomatic ties were restored in 1956, but the two countries never signed a formal peace deal acknowledging the end of WWII due to the island dispute.

This week, Abe is hoping Moscow will return the two smaller islands, which make up 7 percent of the total land area of the four islands, in exchange for a peace treaty and possibly, further negotiations down the line. But that may be too ambitious for two countries with a large political base of nationalists.

"The Russian side feels strongly that these islands came to them at the Soviet Union's victory in WWII so unless Japan is willing to acknowledge the results of that conflict, Moscow is unwilling to transfer any territory," James Brown, associate professor at Temple University Japan, told CNBC's "Street Signs" on Thursday.

From a meeting on the sidelines of the United Nations General Assembly in Sept 2015 to a summit in Sochi in May this year, Abe has long been aiming for deeper bilateral relations despite being a participant in sanctions imposed on Moscow by the Group of Seven (G7). But despite Abe's aggressive courtship, Putin is playing hard to get.

Kremlin officials have cautioned against any breakthrough on the islands, warning that resolution would be a long process and voicing their preference for talks to be focused on economic affairs instead, Reuters reported on Tuesday.

Earlier this month, Abe had planned to present his Russian counterpart with a new token of his affection, a male Akita puppy as a companion to a female dog of the same breed that Tokyo gifted Putin in 2012. But Moscow turned down the offer, Japanese officials announced last week, prompting numerous 'puppy-love' and 'dog diplomacy' media headlines.

"The Russian side is also very much aware of the fact that Japan's main ally is the U.S., and there are many concerns that if any territory was transferred to Japan, Russia could find U.S. military bases placed on that territory," Brown added.

Naturally, U.S. President Obama does not approve of Abe's friendliness to a country it is trying to punish for intervention in Ukraine but Abe's administration has insisted that any economic co-operation with Moscow would not infringe on existing sanctions, Reuters reported this week.

Putin has long been attempting to engineer a pivot to Asia as he loses friends in the West—a manoeuvre that's so far succeeded in China and most recently, the Philippines under President Rodrigo Duterte.

"Putin may calculate that he must wrest any economic concessions from Abe before a deal is reached or else he would lose his leverage. He no doubt is aware that companies in Japan are wary of investing in Russia, having been burned before, and that only arm-twisting by Abe will lead to memoranda of understanding," The Brookings Institution said in a November report.

A plan to supply electricity, gas and oil from Sakhalin to Hokkaido and Japanese medical investment in the undeveloped areas of Russia's extreme east, as promised by Abe earlier this year, are among Putin's main priorities this week.

"But pessimists, both in Japan and abroad, argue that Putin will demand too much of Japan...and that Abe is guided by illusions likely to be exposed before long," the Brookings report continued.

External geopolitical dynamics will also loom over this week's summit.

"Under a Donald Trump presidency, there's the potential Russia and the U.S. could become closer. Japan also needs to work hard to improve relations with Moscow to ensure that it doesn't become too closely drawn towards China," Brown explained.

"And that's where economic deals come in ... we're expecting around 12-15 inter-governmental, commercial agreements to be signed on Friday. Those deals are hoped to be profitable for Japan and seen as a way of drawing Russia away from China," he continued.

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