Japan automakers feel heat

By Chang-Ran Kim and Cheon Jong-woo

TOKYO/SEOUL (Reuters) - Hyundai Motor has left rivals in the dust with a stunning run this year, and Japanese automakers have even more to worry about now as the yen climbs and South Korea seals more trade pacts to benefit its exporters.

Japan's top automakers have kept a watchful eye on the South Korean underdog over the years as it clawed its way onto the global stage with a strategy modelled on Toyota Motor's (7203.T) playbook.

Hyundai (005380.KS) and its affiliate Kia Motors (000270.KS) are the world's fourth-biggest automaker by sales and making money hand over fist despite the industry's worst ever downturn.

That's putting the heat on Japanese auto executives, especially at a time when the two governments seem to be heading in diverging directions in their support for the export industry.

South Korea last month inked a tentative trade pact with the European Union to add to list of more than 40 free trade agreements (FTAs) with countries ranging from the United States to India. Japan has less than a third as many, almost all of them with the rest of Asia.

Even more worrying for Japanese automakers is the newly elected government's apparent indifference towards the yen's rise against the dollar as the ruling party pledges policies focused on fostering strong domestic demand.

"I think there's a sense of crisis in the whole (Japanese) industry," Toshiyuki Shiga, chief operating officer at Nissan Motor (7201.T), said of Korean automakers' growing clout.

"Whether you take the FTAs or foreign exchange policy, I get the impression that South Korea is tackling things well."