Toyota, the world's biggest automaker, said government incentives for drivers to swap petrol-guzzlers for more fuel-efficient cars were giving a boost to its sales.

The company is still deep in the red, logging a net loss of ¥77.82 billion (R6.3 billion) for the second quarter fo the year - a dramatic turnaround from a year-earlier profit of ¥353.66 billion.

But it did much better than in the first quarter, when it lost ¥765.8 billion. It also beat market forecasts for a first-quarter loss of more than ¥200 billion.

"Domestic sales are picking up helped by government subsidies and tax cuts," said Toyota managing director Takahiko Ijichi.

The group posted an operating loss of ¥194.86 billion for the second quarter, against a year-earlier profit of ¥412.59 billion. Revenue fell 38.3 percent to ¥3.84 trillion.

The Japanese giant painted a less gloomy picture of prospects for the rest of the business year to March 2010 thanks to a brighter outlook for car sales.

Toyota, which last year suffered its first annual loss, now expects to sell 6.6 million vehicles in the year, up from a previous goal of 6.5 million.

It narrowed its annual net loss forecast to ¥450 billion from ¥550 billion and revised its operating loss projection to ¥750 billion from ¥850 billion.

The company joins Honda, Japan's number two automaker, in upgrading its outlook, fanning hopes that automakers are through the worst of the industry crisis - even if their woes are far from over.

"Domestic sales and production are recovering, partly due to tax cuts on eco-friendly cars, and recent figures show that year-on-year falls in US sales are slowing," said Mizuho Investors Securities analyst Atsushi Kawai.

"But on the whole, demand has not yet recovered to the pre-financial crisis level, so it's important for Toyota to cut fixed costs," he said.

Toyota, which overtook General Motors last year as the world's top selling automaker, has idled plants and slashed thousands of jobs as it tries to weather the worst global downturn in decades.

The Japanese maker, the industry leader in fuel-sipping hybrid cars, plans to expand its line up of low- or zero-emission cars as part of efforts to return to profit.

"Even though we are in very severe situations... we won't hesitate in investing in research and development of hybrids and electric vehicles," said Ijichi.

In contrast to Toyota's brighter outlook, Yamaha on Tuesday said its loss in 2009 would be more than four times bigger than previously expected because of sluggish motorcycle sales and a strong yen.

Yamaha forecast a net loss of ¥182 billion for its business year through December, the first such shortfall in 26 years. Previously it had expected to sink ¥42 billion in the red.