The paper said the company would start producing mainly mid-size gasoline engines as early as 2009 with an annual output capacity of 100,000 to 200,000 units. The plant, Toyota's fifth engine-assembly base, will be built in Kitakyushu city in southern Japan, it said.
Toyota spokeswoman Atsuko Watanabe said the company did not have such a plan at the moment but said the city had approached the automaker's local subsidiary to sell land.
Toyota, which is expected to claim the title of the world's biggest automaker from General Motors this year, last month posted a near-20 percent rise in quarterly profit on brisk sales in North America and Europe, and kept its forecasts for a sixth straight year of record earnings intact.
The company is cruising past rivals at home and abroad, riding a reputation for producing energy-efficient cars, boosted by the halo effect from its popular Prius hybrid and backed by a steady stream of new or refreshed products such as the RAV4 crossover, Lexus LS and Camry sedans.
It said on Wednesday it would build a $1.3 billion assembly plant in Mississippi.