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Russia-Japan: an example of peace and commerce in Asia?

The formidable economic potential of the Russia-Japan trade is an improbable investment story. But it is a promising investment story nevertheless.

Formally, these two countries – whose leaders just finished their fifth summit meeting in the last 10 months – are in a state of war. They also have a serious border problem. Four islands, one of which is only 15 kilometers from Hokkaido, are claimed by Japan and controlled by Russia ever since they were taken by the Red Army in the closing days of WWII.

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You would not guess any of that though by looking at the beaming Russian and Japanese leaders, reaching across a negotiating table for a warm handshake last Friday.

Pursuing his policy of "active pacifism," Japanese Prime Minister Shinzo Abe was one of the 65 heads of state and government who came to celebrate the opening of the XXII Olympic Winter Games in Sochi, Russia's Black Sea resort.

Japanese Prime Minister Shinzo AbeGetty Images

Predictably for those following the Russia-Japan relations, Mr. Abe got a very special treatment. He was hosted to lunch and a friendly discussion in the midst of Russian President Putin's hectic schedule on the opening day of this sports event. And he also got to see the beautiful dog Yume, Mr. Putin's gift from the Japanese government, which, being of a famously stubborn Akita Inu breed, routinely defies the presidential orders.

This was an extraordinary sight of bonhomie no one would expect from leaders dealing with such a heavy burden of historical heritage.

Hard-headed economic calculus

The emotional intelligence experts who would rush to "explain" this by pointing out the alleged Japanophilia of a Russian black-belt judoka may be on to something – but only up to a point.

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Mr. Putin's interest in Japan as Russia's economic partner dates back to the early 1990s when, as deputy mayor of St. Petersburg, he was in charge of bringing business and investments to Russia's northern capital. He pursued the same objective when he went to Japan for a summit meeting in 2005 during his first term as president, and followed that up with another visit in 2009 as prime minister.

The Russian leader wants to develop an economic partnership with Japan based on complementarities offered by his country's natural resources and Japan's technological assets.

Mr. Abe seems to agree. Visibly proud and pleased, he noted, standing next to his Russian counterpart last Friday, that "more than 12 thousand units of Japanese audio and video equipment and large electronic displays" were used for various venues of the Sochi Olympics. Mr. Putin responded by saying that this was just part of the Japanese technological input into this huge sporting event.

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Energy projects, however, are the mainstay of this partnership. Japan is the largest buyer of natural gas and imports more than 80 percent of its energy needs. Increasing oil and gas supplies from Russia are now under active consideration in the aftermath of the destruction of some of Japan's nuclear power plants.

Japan is also looking at large business opportunities offered by Russia's own "pivot to Asia" – the economic development of Siberia and the Far East, representing about two-thirds of Russia's landmass. Seeing attractive business deals for Japan, Mr. Abe calls this "the project of the century."

Russia's Arctic is also an appealing destination for Japanese investments. That is the latest frontier for energy, mineral resources and maritime transportation.

Oil exploration deals in this region are already under way between Russian and Japanese firms.

The Northern Sea Route is of particular importance for Japan's large merchant fleet, because it reduces the travel time between Europe's Atlantic and North Sea ports and Japan by about 40 percent, compared with the passage through the Suez Canal. That puts Japanese ports at a competitive advantage with respect to Hong Kong, Shanghai and Singapore.

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