Domestic sales of passenger cars, trucks and buses in fiscal 1997 are likely to drop 3.7 percent from the previous year to 7 million units, due to expected weakened demand after the consumption tax hike in April, the Japan Automobile Manufacturers Association said Mar. 19.

JAMA said that while the scheduled Tokyo Motor Show in autumn would encourage consumers to buy new cars, the tax hike and a suspension of income tax cuts will slow the pace of economic recovery and the severe fiscal conditions will lead to a decline in public works spending. The association also said that domestic production in fiscal 1997 is estimated to drop from the current year, as it believes carmakers will not try to expand exports to offset weak domestic demand.

But at the same time, JAMA Chairman Yoshifumi Tsuji said he remains optimistic because the current sales boost prior to the tax hike is much higher than expected, and automakers can spend a large amount of money on sales campaigns and supporting component makers thanks to the profits from the recent lower yen. "We cannot be totally sure until we see May or June figures whether the current brisk sales only represent a purchase rush before the tax hike or a full-scale, sustained recovery," Tsuji said. "But I think sales in fiscal 1997 could exceed the association's predictions."