Company president Katsuaki Watanabe said domestic sales were likely to drop to about 1.65 million, or 4 per cent below its target of 1.72 million for the year.
Toyota's downbeat view of its Japanese sales prospects underscores the tough environment that even global car makers face in their home markets.
Vehicle sales this year are expected to be lower in the US and flat at best in western Europe.
Toyota does not expect its domestic downturn to affect overall group sales this year, which are forecast to hit 9.34 million, lifting the group to the top global spot ahead of General Motors.
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