In its 2018 Fourth-Quarter Forecast, Stratfor noted that Japan's outreach to Russia might result in economic deals but that Russia would not make any moves that compromised its hold over the disputed southern Kuril Islands. Developments at the Eastern Economic Forum appear to have confirmed that forecast.
Russian President Vladimir Putin made a surprise offer to Japan at the Eastern Economic Forum on Sept. 12. During a panel discussion alongside Japanese Prime Minister Shinzo Abe, Putin remarked that the two sides should conclude a World War II peace treaty by the end of 2018 without preconditions and build on that foundation "to resolve all controversial issues." This treaty has been stalled for decades because of a thorny territorial dispute over the southern Kuril Islands.
Abe did not respond directly to Putin, but Japanese Chief Cabinet Secretary Yoshihide Suga followed up by saying Japan has not shifted from its position that the two sides must resolve their territorial dispute over the southern Kurils before signing a treaty. However, Kremlin Spokesman Dmitry Peskov said Japan has not officially responded.
Why It Matters
While Putin's statement might appear to be an olive branch, it is in fact a roundabout rejection of Japan's push to resolve the territorial issue first. While it is still unclear why Putin made the public offer, it implies that Japan should simply accept the status quo on the islands — Russian control. All in all, it appears that Russia is open to negotiations on a peace treaty, but Putin's statement implies no movement on territorial issue, meaning it is unlikely to entice Japan.
Although the Russia-Japan territorial dispute has been a point of contention since the end of World War II, Abe has made resolving this issue a priority of his tenure as prime minister. He has shifted Japan away from its longtime maximalist position that all four of the southern Kurils must be returned unconditionally. Instead, Abe has focused on frontloading political and economic engagement, offering economic sweeteners as a foundation to move toward joint administration or eventual return of the islands. In spite of progress and nearly two dozen Abe-Putin meetings since 2012, Russia has increasingly refused to make any agreements that would undermine its claim to the territory. The issue of territorial sovereignty is simply too contentious for Russia in the wake of the 2014 Ukrainian Euromaidan uprising and Russia's annexation of Crimea. At the same time, tensions with the West have made it necessary to improve economic and diplomatic ties with Asian powers. In this, Japan has become a prime object of interest, although Japan's status as a U.S. ally and ambiguous position in the standoff between Russia and the West complicates Moscow's overtures.
While Russia has been stubborn on territory, Japan's promises to sweeten the pot with investment have proved lackluster. Russia and Japan have held a number of meetings during the Eastern Economic Forum on how to increase Japanese investment in Russia. Putin identified energy as a priority sector, mentioning potential Japanese business involvement in projects in northern Siberia, the Russian Far East and the Baltic Sea. The two sides are also working toward joint economic ventures in the southern Kurils on fishing, agriculture, tourism, green energy and waste management — although progress on these projects have been slow due to disputes over which country's laws should be applied. However, Japan's investment in Russia has been relatively low overall in spite of Abe's promises. Unlike China, Japan does not have a massive capacity to direct its businesses toward strategic investments. Since 2012, Japan's total foreign direct investment (FDI) in Russia has amounted to $2.2 billion and, with the exception of 2015, has not topped 2 percent of Japan's total FDI. China, by contrast, has invested $31.98 billion in that time. And at the Eastern Economic Forum, a consortium of Russian and Chinese businesses announced that they had implemented seven projects worth a total of $4.6 billion since 2012 and had now set a goal for 70 more valued at $100 billion. Even if China does not manage to make good on all of these, it is clearly outpacing Japan in doing business with Russia.