Toyota launched the most expensive Lexus to date–the LS600hL hybrid luxury sedan–in Japan. Fully loaded, it costs a pricey 15.1 million yen ($126,000) and is easily the most expensive Japanese brand passenger car on the market.

Just as important, it’s also another warning shot to Mercedes Benz and BMW that Toyota is deadly serious about eating away at their share of Japan’s luxury car market.

While Toyota dominates its domestic auto market with over 40% share, European car makers have long been the place to go for wealthy car buyers looking for sophistication.

Even the launch of the Lexus brand in Japan in August 2005, initially didn’t appear to be making much of an impact. By the end of that year, Toyota had only sold 10,300 Lexus cars in Japan, just over half its target. Worse, there were suggestions that most of the Lexus buyers were Toyota owners upgrading, rather than fans of German car buyers making a switch. One problem was that the kind of people buying European imports didn’t think Japanese automakers–even Lexus–had enough status to be true luxury items.

Now, though, things look to be changing. Following the launches of the the GS450h hybrid and LS460 last year, Lexus appears to be eating into European rivals’ share in Japan. Through 2006, sales of Lexus rose 130% to 31,000 and are expected to be even better this year. By contrast, through the end of April, BMW sales were down 2.8% to14,267 and Mercedes Benz sales were down 11.2% to 16,699, according to the Japan Automobile Importers Association.

Of course, the high-end LS600hL won’t make a great difference to Lexus units sales. Toyota only expects to shift about 300 units of the LS600L and the smaller LS600h, also released yesterday, each month. But both models should help the Lexus cause. First, the high price suggests margins will be a lot better than what Toyota makes on its Corollas. Perhaps more important, LS600hL’s specs should be enough to persuade more of Benz and BMW drivers that Japanese cars can be luxury models.

North American Lexus buyers will have to wait a little longer. Toyota said last month that the U.S. launch has been delayed by 30 days to late July until early August.

via Business Week