TOKYO - A decades-old territorial dispute that has prevented Japan and Russia from signing a peace treaty is showing no signs of improving following talks between the two country's foreign ministers here, but as Russian Foreign Minister Sergey Lavrov leaves Japan Sunday some progress has been made in bilateral economic and security cooperation.

Relations between Russia and Japan have been clouded due to a heated territorial dispute regarding four islands off the coast of northern Japan's Hokkaido island.

The dispute over sovereignty is largely concerned with the somewhat ambiguous San Francisco Peace Treaty between the Allied Powers and Japan inked in 1951, which states that Japan must give up its claims to the islands, but recognition of sovereignty over the islands was not given to the Soviet Union either, and therein lies the conflict.

Russia, for its part, however, believes sovereignty was recognized long before the 1951 treaty at the end of the Second World War and the territorial dispute has prevented the two countries from signing a postwar peace treaty.

The islands in question are Etorofu, Kunashiri, Shikotan and the Habomai rocks, which are believed by Japan to be part of the Nemuro Subprefecture of Hokkaido Prefecture and are referred to by Japan as the Northern Territories.

Russia, however, maintains that the islands that they refer to as the Southern Kurils are their territory with Russian President Dmitry Medvedev stating recently that not only are the islands a " strategic region" of Russia but that they would soon be home to some of Russia's most advanced weaponry, which drew the ire of Tokyo.

Tensions were also raised in November 2010 when Medvedev became the first Russian leader to visit the resource-rich islands, which are surrounded by rich fishing grounds, oil wells, natural gas and rich mineral deposits -- all keenly vied for by both parties.

TWO WAY STREET

Both parties are under no illusions about the economic benefits the islands and their surrounding waters could provide if fully developed and to this end during the four-hour working lunch on Saturday, Japan's Foreign Minister Koichiro Gemba and his Russian counterpart traversed the idea of the two countries working towards a roadmap of cooperation that would be to the economic benefit of both sides.

Japan proposed that such cooperation should encompass the territory's abundance of natural resources and, according to senior official present at the meeting, the Russian side were receptive to the idea.

In fact, Lavrov said that he wanted to create an environment in which Japan can conduct economic activities on and around the islands in cooperation with Russia, such as fishing, farming and tourism, without Tokyo's "legal stance" being compromised.

"This is progress to some degree, and what we are seeing is a slight softening in diplomacy between the two sides, but this is underpinned by economic factors, which are a win-win for both sides, so a moderate compromise by both parties is of no great surprise," said Laurent Sinclair, an independent research analyst for Pacific affairs.

"No clear plans were made for energy cooperation, but Tokyo and Moscow are well-placed and have enough strategic wit to see some form of joint economic endeavors through to fruition," he said.

Sinclair went on to say that Tokyo would be keenly watching developments in Moscow as Prime Minister Vladimir Putin may be reinstated in the Kremlin following presidential elections in March and following this Lavrov indicated that the resumption of peace treaty talks would be likely.

SOFTER TONES

Following previous threats by Moscow to deploy what it described as "advanced weaponry" to the disputed islands, Tokyo has marginally reduced the aggressiveness of its own rhetoric on the matter, opting instead to focus on trade relations, business travel to Russia by Japanese citizens and vice versa and loosening certain protocols surrounding these.

Gemba said that the Asia-Pacific region is seeing a number of pertinent shifts and to this end he told his counterpart that he wanted Tokyo and Moscow to enter new era of security cooperation, stating that the Japan-Russia relationship should be multi-faceted and span security and defense as well as matters of economy.

Lavrov for his part agreed that the two sides needed to address expanding relations between Moscow and Tokyo, in the best interests of both countries and in response to shifting dynamics in the Asia-Pacific region.

Japan, while opting for a less belligerent tone, for the time being, has also said it will allow citizens to apply for visas for stays not exceeding 90 days without requiring letters of invitation from Russia and the validity of multiple-entry visas for Japanese traveling to Russia for business will be extended from the current one year to three years.

The increase in personnel traffic between the two countries will have a direct bearing on trade, a point that was welcomed by Lavrov, as the two nations saw trade increase to the tune of 31 billion U.S. dollars last year.

"Gemba's played a smart game. Japan does not want any unnecessary hostilities from Russia over the territorial row. But Gemba and Japan recognize that it will not be resolved anytime soon," said Koichi Ishikawa, a Japan affairs commentator.

"In the meantime both countries accept it's in their best interests to cooperate to further develop the resource-rich Far East region. In term of diplomacy, loosening the visa rules and so on is just window dressing."

"Both countries have a clear economic purpose here", Ishikawa said.

FIXED FUNDAMENTALS

Gemba said that solving territorial dispute and signing a peace treaty with Russia is now of paramount importance and the potential exists for the two countries to forge far closer ties. However, the foreign minister added that Japan will be unwilling to pump its funds into joint development projects until the issue is put to bed.

Lavrov claimed that Moscow is seeking to explore some areas it can compromise with Tokyo on, even going as far as to say that they don't wish to violate what Japan calls its "legal stance" on the islands debate. However, he conceded that the two countries fundamental views on the islands' sovereignty remain apart.

"Gemba and Lavrov have both said they want to find a solution in a calm and peaceful manner, but neither side will roll over easily," Ishikawa said.

When questioned by the Sakei Shimbun newspaper prior to Lavrov' s arrival, Gemba's stance on the issue was absolutely unwavering.

"I have consistently made statements so far that the occupation of the Northern Territories by Russia has no grounds in international law and this position of the government has remained consistent."

"So on that regard, the view of the Japanese government has a gap from that of the Russian government," Japan's foreign minister stated.

While it is possible that certain economic benefits may emerge from both countries' recent positive diplomatic tones, future cooperation may be tenuous as Japan has and will continue to fiercely guard what it believes to be its "legal position."

"Japan has been very careful when it comes to semantics with Russia and as was the case with the Liberal Democratic Party and is now so with the ruling Democratic Party of Japan, the expression "unlawful occupation" has been largely avoided, but the sentiment remains exactly the same. Japan's fundamentals on the territorial dispute are unyielding and I don't see this changing anytime soon," said Sinclair.