The drop would follow a 1.9 percent decline to an estimated 5,742,600 vehicles for 2006, when full-sized sedans and compact cars lost ground to cheaper 660cc minivehicles, produced mainly by Suzuki Motor Corp. and Daihatsu Motor Co.
Auto executives have grumbled that a gradual economic recovery in Japan was not translating into more automobile sales, which are expected to come under further pressure as the country's population starts to decline. Japan last year lost its place as the world's second-biggest auto market to China.
Excluding minivehicles, auto sales in Japan are expected to fall 2.4 percent to 3.635 million units next year.
"That's roughly the size of the market 30 years ago, when I joined Nissan," Toshiyuki Shiga, chief operating officer at Japan's no.2 auto maker, told Reuters this week.
Shiga said he was befuddled by the trend, speculating that one reason could be that young people were choosing to buy computers and other big-ticket items instead.
Still, auto makers are aiming to win their hearts and wallets back through new product launches: Nissan Motor Co. last month remodeled its iconic Skyline sports car, and said this week it would ramp up production next quarter to satisfy stronger-than-expected demand.
Top-ranked Toyota Motor Corp., meanwhile, took the wraps off the all-new, 2.4-liter Blade hatchback on Thursday, hoping to compete with Volkswagen AG's Golf and other import brands.
"The compact class, centering mainly on 1.5 to 2.0-liter models, makes up about 30 percent of the non-mini passenger car market," Toyota President Katsuaki Watanabe told reporters at the unveiling.
"We hope to broaden this customer base by offering a product that's a cut above the rest," he said, pointing to the Blade's top-of-the-class safety features such as the vehicle stability and traction control systems.
Toyota aims to sell an average 3,000 units of the Japan-only model every month. The most basic version starts at 2.247 million yen ($18,980), compared with less than 1.5 million yen ($12,670) for most 1.5-liter hatchbacks sold in Japan.
Banking on the continued rise in corporate profits in Japan -- and hence personal income -- the auto industry group predicted a pick-up in car sales from the latter half of 2007.
Stable gasoline prices would also help to bring customers back from the minivehicle segment, which benefited from a slew of new model launches this year, it said. The group forecast a 0.2 percent rise in demand for non-mini passenger cars in 2007.
Sales of minivehicles, estimated to rise 4.8 percent to a record 2,017,000 units this year, are expected to fall 1.1 percent to 1.995 million units in 2007.
Overall demand for passenger cars is projected to fall 0.3 percent to 4.633 million units. Truck sales are expected to fall 9.1 percent to 982,000 units, and bus sales to inch down 2 percent as replacement demand for vehicles to meet stricter emissions regulations falters.