By V. Phani Kumar

Japanese auto makers have a tough road ahead of them, with some recently encouraging data likely proving insufficient to mark a true recovery for the sector, analysts said.

The Japan Automobile Dealers' Association said Thursday that new-vehicle sales within the country rose 3.5% to 321,737 vehicles in September, up 3.5% from a year earlier. It marked the second straight rise after August domestic sales improved 2.3%, the first up-tick in 13 months.

Bank of America Merrill Lynch Research analyst Koichi Sugimoto said that, at least in comparison with year-ago levels, the improvement was likely to continue. Sugimoto expects October-December sales to rise 16% on year, and January-March sales to climb 26% from a year earlier.

But, the analyst added: "Although we expect an increase in the growth rate, this is of course due to the low year-earlier level, and can't be viewed as a real recovery."

The sentiment seemed borne out by data later in global day from the U.S., showing further sharp drops in Japanese firms' September sales there. Statistics Thursday showed Honda Motor Co.'s U.S. sales dropped more than 20% on year, while Toyota Motor Corp.'s monthly sales declined 16.1% and Nissan Motor Co.'s sales slid 7%.

Those figures, along with overnight stock losses on Wall Street and a strengthening of the Japanese yen -- obviously bad for Japan's export-focused auto companies -- helped plunge most car stocks.

Shares of Toyota (TM) fell 3.1%, Nissan (NSANY) slid 3.8% and Honda (HMC) lost 2.7% in Tokyo morning trading as each saw their September U.S. sales fall, though they continued to clinch market share.

That outpaced the sell-off in the broader market, where the benchmark Nikkei 225 Average had fallen 2.5% by midday. The U.S. shares losses had cast a shadow over other regional markets, with Hong Kong's Hang Seng Index down 2.7%, Australia's S&P/ASX 200 off 2%, and Taiwan's Taiex down 1%. Chinese, Indian and South Korean markets were closed for a holiday.

At least some, if not most, of the declines seen in the U.S. sales numbers were attributed to the end of the "cash for clunkers" buyer incentive program, a stimulus measure that had helped Japanese and other auto makers work through their inventories.

"Healthy demand has enabled Japanese auto companies to substantially lower overseas inventories, including excessive cutbacks to less-than-optimal levels in some markets such as the U.S.," Barclays analyst Tsuyoshi Mochimaru wrote in a recent report.

"However, it is becoming increasingly apparent that the market will encounter a backlash decline with the expiration of purchase incentives," Mochimaru said.

The Barclays analyst tipped "a slight drop" in Japanese vehicle output for the fiscal year ending March 2010.

But for the following year, as the Japanese auto firms react to a smaller baseline of demand, "production is likely to slip below 9 million vehicles for the first time in 32 year.