By Linda Sieg and Hyonhee Shin
TOKYO/SEOUL (Reuters) - Japan and South Korea will try to keep a row over World War Two forced labourers from spiralling into a crisis, after a court ruling forced the U.S. allies to confront hardening public opinion and divergent views of history.
South Korea's top court ruled on Tuesday that Japan's Nippon Steel & Sumitomo Metal Corp. [5401.T] must compensate four South Koreans for their wartime forced labour, a binding verdict Japan denounced as "unthinkable" while expressing hope it would not hurt the uneasy neighbours' cooperation on North Korea.
South Korean Foreign Minister Kang Kyung-wha and her Japanese counterpart, Taro Kono, stressed in a Wednesday telephone call the need to keep cooperating "for the future oriented development of the relationship", South Korea's foreign ministry said.
The two countries need to cooperate to rein in North Korea's nuclear and missile programmes, and they also have close business ties. Japanese firms invested $1.84 billion in South Korea last year, its second largest foreign investor, Korean data show.
But relations have long been plagued by the legacy of Japan's 1910-45 colonisation of the peninsula and the war, including the matter of "comfort women", a euphemism for girls and women forced to work in Japanese wartime military brothels.
"The sentiments of compromise are in short supply in both countries," said Jeffrey Kingston, director of Asia studies at Temple University's Japan campus.
"Basically, across the political spectrum, Koreans feel Japan has inadequately addressed the wounds of the past," he said.
"Japan feels it has already resolved the issue legally and they don't want to show flexibility because it would open up a Pandora's box of claims" against other Japanese firms.
There are 14 similar lawsuits pending against firms including Mitsubishi Heavy Industries Ltd [7011.T] and Mitsui Mining and Smelting Co Ltd [5706.T].
Two are class action suits with a total 752 plaintiffs.
South Korea says there were nearly 150,000 victims of wartime forced labour, 5,000 of whom are alive, but families of those who have died can also make a claim.
Japan has threatened to seek international arbitration of the dispute, but Kono told reporters it would wait to see what steps South Korean President Moon Jae-in's government takes.
"We're just starting to explore next steps, with a task force to be created under the prime minister with private experts too," a South Korean government official told Reuters on condition of anonymity due to the sensitivity of the matter.
"It's really difficult, but we need to come up with a wise idea that can minimise the consequences."
Japan says the compensation issue was settled by a 1965 treaty normalising ties.
Past South Korean governments have agreed, but the Supreme Court said the treaty left open the door for individuals to seek recompense.
Moon's government has said it would respect the court's decision.
Some experts in Japan said one option could be for South Korea to create a fund to compensate former labourers, perhaps with financing from companies in both countries.
South Korean firms benefited from Japanese aid under the 1965 treaty, overseen by South Korean dictator Park Chung-hee.
Few funds went to individuals, and forced labourers began to come forward in the 1990s.
In 2000, the German government and companies set up a forced labour fund to compensate Hitler-era victims, a format some experts said could be a model for Japan - although whether Japanese firms would be willing to contribute is not clear.
South Korean officials expressed doubts. The legally binding nature of the Supreme Court ruling appears to restrict the scope for diplomatic manoeuvring, while on both sides there's a risk of public anger.
"Any Japan-related historical legacy issues are highly political and could rekindle anti-Japan sentiment," said former South Korean national security adviser Chun Yung-woo.
"There would be heated debate as to what responsibilities the government and those companies that benefited from the Japanese funds decades ago bear," he said.
A rightward shift in Japan mirrored in Prime Minister Shinzo Abe's conservative agenda could also hamper a solution.
"Unfortunately, the present government in Japan is run by people who believe the post-war is over and therefore they see remembering the unpleasant past as damaging to the dignity of the state," said Andrew Horvat, a visiting professor at Japan's Josai International University and expert in historical reconciliation issues.
"Their support base is clear on that."
(Writing by Linda Sieg; additional reporting by Josh Smith and Jeongmin Kim in Seoul and Kiyoshi Takenaka in Tokyo.; Editing by Robert Birsel)