Putin then said that there was a "chance" to settle a dispute over the Kuril islands, a chain of volcanic islands that run between Russia's Kamchatka peninsula and Japan's northern island of Hokkaido.

Putin and Abe occasionally chatted and looked relaxed after rounds of intense talks over the last two days, including territorial disputes over the Kuril Islands, which the former Soviet Union seized from Japan in 1945. Russia governs the islands and the Russians who now live there.

The joint declaration issued Friday said only that the two countries will negotiate the legal mechanisms needed for holding joint economic activities, and that such agreements would not harm the political positions of the two countries.

Ministerial level security talks were halted after Russian Federation annexed Ukraine's Crimea region in 2014 and the United States and other Group of Seven countries imposed sanctions in response.

Russian Federation has been hit by Western, and Japanese sanctions, for its role in the Ukraine conflict and its economy is slowing.

"It would be naive to think we can solve this problem in an hour", Putin said at a joint press conference with Mr Abe.

"I believe there are a wide range of areas where Japan and Russian Federation have not exercised our fullest potential, despite the fact that we are neighbouring nations", he said. "It's Japan that thinks that is has a territorial problem with Russian Federation", he said.

Four-year-old Yume, who was given to Putin by Japan's Akita Prefecture in 2012, can be seen on video entering the room, proceeding to loudly bark at the visiting Japanese journalists who stood frozen in front of the pup yesterday.

Putin said that Russian Federation may relax rules for Japanese citizens to visit the Kuril islands.

Thursday's delay was because of "scheduling issues" including ones related to Syria, Putin spokesman Dmitry Peskov told reporters, without elaborating.

Russian Federation and Japan have finally hammered out an agreement to jointly develop the four disputed islands in Northern Pacific and hold talks on the details of the joint economic development plan, removing the main obstacle that stands in the way of a bilateral peace treaty.

As the two leaders headed for their second round of talks today, right-wing activists in trucks mounted with loudspeakers circled the streets not far from the prime ministers' office, blaring "Return the islands" and "Putin go home".

Russian Federation and Japan will move toward economic cooperation, but they will not move toward resolution as to who is the rightful owner of the disputed Kuril Islands.

But improving the economic relationship also comes back to the islands. Japan, under pressure from cold-war ally America, declined to sign.

But few believe Mr Putin is likely to hand the islands back, not least due to their strategic value sitting astride the entrance to the Sea of Okhotsk as well as Russian pride at having taken them as spoils of war. A lot of them are Russian military personnel and their families. It was originally believed that Putin and Abe would converse in the hot springs outlooking a Japanese garden, before going to an observatory.

Abe invited Putin in hopes of making progress on a longstanding territorial dispute between the two countries that has prevented them from signing a peace treaty formally ending World War II.

"I would like you to take our concerns into consideration", Putin said.

Last year Russian Federation announced plans to build a military base on the Kuril Islands, along with four Arctic bases as part of Putin's plan to build up his country's military presence in the region.