Sales of vehicles (excluding minivehicles up to 660cc) in Japan rose 3.5% to 321,737 in September from a year earlier, the Japan Automobile Dealers Association (JADA) said in a statement today.

It was the second straight month of growth which has been driven by government incentives to encourage sales of smaller and more fuel-efficient cars.

Under the government programme which began in June, consumers can apply for a 250,000 yen (US$2,800) subsidy if they scrap a car more than 13 years old to buy a new one, and 100,000 yen for a new car purchased without scrapping an old one. The subsidies are available retroactively for purchases from April 10. The program is due to expire at the end of March.

The government expects the incentives to lead to the sale of an additional 690,000 vehicles this fiscal year. Electric, hybrid, natural-gas, and some diesel vehicles also qualify for an exemption from the country's weight and purchase taxes.

"The auto industry continues to see the positive effect of government incentives," said a JADA official.

However, analysts caution that the state of Japan's economy remains very fragile and that without incentives, sales would be depressed.