Toyota president Katsuaki Watanabe said on Thursday he wanted to raise the company's minimum domestic output level to 3.8 million vehicles a year, adding that would help avoid the "hollowing out" of Japan's manufacturing sector.

Reuters noted that Japan's top auto maker had said for the past few years that it would maintain domestic output of at least 3.5 million units annually as politicians worried about the exodus of the country's manufacturers to cheaper production centres.

"The global auto market is going to expand," Watanabe told the news agency. "That will fuel exports and we want to bring output to the 3.8 million unit level. Creating this kind of situation will also help the progress of Japan's economy and industry, and that's very important to prevent a hollowing out."

Reuters said Toyota, the world's second-biggest auto maker, is trying to build more cars where they are sold, but it has lagged rivals Honda and Nissan in raising the level of local production mainly because demand has outpaced supply. It has been making up for some of the demand by exporting vehicles from Japan.

Toyota produced 3.68 million vehicles in Japan last year and plans to raise that by another 4% this year to 3.8 million units, excluding vehicles built by its affiliates Daihatsu and Hino, the report added. That would account for 57% of its planned global output for this year, and compares with its domestic sales forecast of 1.8 million units.

"We still need much more work to boost local production ratios. But we can't build all cars sold in all markets locally, so some models need to be exported from Japan," Watanabe told Reuters.