Business

Japan car sales jump on subsidies for green vehicles

  • 1 March 2012
  • From the section Business
A Toyota Prius plug-in Hybrid car
Image caption Japan has been trying to boost sales of energy-efficient cars

Japanese car sales, including those of 660cc mini vehicles, rose in February as government subsidies for energy-efficient vehicles lured buyers.

Passenger car sales jumped 33% from a year earlier, while mini vehicles saw an increase of 25%.

Japan has reintroduced a scheme giving a subsidy of up to 100,000 yen ($1,245; £786) per car on eco-friendly vehicles.

However, the scheme has a limit of 300bn yen and will expire once that amount is reached.

Analysts said that even though the scheme had a big budget, consumers were trying to ensure that they do not miss out on it.

"The cap on the subsidies should get us to September, so people know they have to avail it sooner rather than later," Kurt Sanger of Deutsche Bank told the BBC.

Domestic demand

Japanese carmakers have been going through a tough time. Their production was hurt last year by the earthquake and tsunami in Japan in March, and then by floods in Thailand later in the year.

At the same time, a strong Japanese currency has also dented their competitiveness, making Japanese cars more expensive to foreign buyers.

The yen rose by as much as 11% against the US dollar between April and October last year.

However, interventions in the currency market and increasing monetary easing by Japan's central bank has seen it weaken since then, though companies say it is still higher than the level they would be happy with.

The combination of these factors has contributed to a fall in their market share in key economies such as the US.

Analysts said that as the nation's carmakers lose ground outside Japan, authorities have been trying to boost domestic demand in order to help them.

"In order to maintain production utilisation they need more domestic demand to absorb the output," said Mr Sanger. "This subsidy programme helps do that."

However, Mr Sanger warned that once the subsidies expire, there may be a dip in car sales.

"We expect very strong growth till September followed by a correction," he said.