“The chancellor said she hoped the dialogue between representatives of the Dalai Lama and the Chinese government will develop in a successful way,” said a statement from Merkel's office issued in Japan after the leaders met.
The Chinese government and representatives of the Dalai Lama last week finished a fresh round of talks on the status of Tibet, but an envoy of the spiritual leader said that no headway had been made.
China had previously held talks with Dalai Lama representatives on Tibet's future, but they broke off last year.
Beijing restarted the dialogue recently as world criticism intensified over its massive crackdown on deadly anti-Chinese riots that engulfed the Tibetan capital Lhasa on March 14 and spread across the Tibetan plateau.
Merkel, in Japan for the Group of Eight summit, also wished Hu good luck for hosting the Olympic Games in Beijing next month.
The meeting came less than a month after China's foreign minister said relations between China and Germany were back to normal after ties between the two soured when the German chancellor met with the Dalai Lama.
China believes the Dalai Lama is trying to achieve independence for his Himalayan homeland despite his repeated statements to the contrary, and regularly denounces politicians from other countries when they meet him.