Japan, Russia make scant progress on island row

Japan and Russia made scant progress on resolving a decades-old dispute over a group of islands at a leaders' summit on Wednesday, even as they stressed the two nations' growing economic ties.

Any major headway in the islands dispute would have been a boost for unpopular Japanese Prime Minister Taro Aso, who suffered a fresh blow on Tuesday when his finance minister quit after being forced to deny he was drunk at a G7 news conference.

"On the territories issue, we have agreed to speed up detailed work on a creative, out-of-the-box approach to resolving it within our generation," Aso told reporters after meeting Russian President Dmitry Medvedev on the island of Sakhalin.

Tokyo had hoped for a concession from the Russian leader although analysts had predicted that the chances of a breakthrough were slim without a bold new proposal from Japan.

Asked what new approach the two leaders had discussed at the meeting, Aso said only that the two sides would remain at an impasse if they stuck to past positions and that the issue needed a political decision rather than talks among bureaucrats.

A Japanese official later told reporters that Medvedev's stance for a fresh approach could push working-level talks forward.

Aso's daytrip is the first to Sakhalin by a Japanese leader since it was seized by the then Soviet Union, along with a chain of neighbouring islands, in the last days of World War Two.

Japan still lays claim to the group of small islands, known in Russia as the Southern Kuriles and in Japan as the Northern Territories. The islands lie amid rich fishing grounds close to Russian oil and gas production regions.

Neither side accepts the other's claim of sovereignty over the sparsely populated islands, the closest of which is just 15 km (9 miles) from Japan's northernmost island of Hokkaido.

Booming markets

Despite the territorial row, which has prevented the two sides from signing a peace treaty ending World War Two, economic ties have flourished as Japan eyes Russia's growing consumer market and its booming oil and gas industries.

Aso was in Sakhalin for the debut of Russia's first liquefied natural gas (LNG) plant in the Sakhalin-2 oil and gas project, a venture in which Japan's Mitsui & Co [8031.T] and Mitsubishi Corp [8058.T] are minority shareholders.

Medvedev stressed the importance of economic ties at the start of the talks. "The value of our bilateral trade is growing steadily. Last year it was $30 billion," he said.

"That is a good figure, but we need to think about the further widening of our trade relations and pay attention to investment projects."

The Sakhalin project has a rocky history, but is considered vital for Japan's bid to secure steady supplies of energy and to reduce its reliance on the Middle East for its energy needs.

More than half of the project's output has been earmarked for Japanese buyers, enough to meet about 7 percent of Japan's annual LNG imports.

Business ties are also growing as Russia seeks Japanese investment to develop its Far Eastern regions. The two leaders discussed a project in which Japanese companies will help build a bridge in eastern Russia and other possibilities for cooperation in the area of natural gas, the Japanese official said.

Two-way trade has grown nearly sixfold since 2002. Major Japanese investors in Russia now include carmaker Toyota Motor Corp which opened its first plant there in 2007, and Nissan Motor Co, which plans to open a factory in St Petersburg in May.