TOKYO - Hard times at home and setbacks elsewhere in Asia have not dented the ambition or optimism of Japan's No.1 automaker.

For canny and conservative Toyota Motor Corp., these are considered temporary, inconvenient potholes on the road to more sales and larger market shares in the future.

Nearer-term, Toyota expects its worldwide production to increase 2.3% to 4. 91 million units in fiscal 1998 (ending next March 31). That includes a 1.8% decline in Japan to 3.36 million units that would be offset by an 8.2% rise in offshore output to 1.55 million units.

"Earnings growth will be flat in the next two years, and we might even see some declines. But keep in mind that we're making substantial investments in new facilities and modernizing existing plants, and we expect to see positive results in fiscal 2000," Toyota President Hiroshi Okuda tells WAW in a recent interview.

Mr. Okuda hopes the Japanese government's new 16.6 trillion ($117.7 billion) stimulus package will restore consumer confidence and jump-start economic recovery late this year.

Although industry suggestions that tax incentives be offered to those replacing old cars were turned down, he is encouraged that the government is considering a lower sales tax (3% instead of 5%) for environmentally friendly cars such as Toyota's Prius gas/electric hybrid, as well as subsidies for electric and other alternative-fuel vehicles.

Elsewhere in Asia, says Mr. Okuda, "We expect recovery will take another two years, although this is based on two big assumptions - that China does not devalue the yuan and Indonesia remains politically stable."

He politely disagrees with those predicting it will take four to five years for Asian economies to recover to 1997 levels. "Most of the pessimists probably haven't done much business in Asia," Mr. Okuda says. From our experience - and Toyota has been doing business in Asia for more than a quarter of a century - the economies generally recover in two or three years following a downturn."

Toyota's European sales target for the year 2000 remains unchanged at 600, 000, but the product line will broaden with the launch of the Corolla hatchback this fall. Reliance on exports will decrease.

Under current plans, Toyota Motor Mfg. (UK) will more than double capacity this year from 1997 levels to between 220,000 and 240,000. By the end of 1999, engine capacity at the plant will double to 200,000, then rise again to 350,000 to 400,000 by the year 2001. That same year, production of the Yaris, a new compact car, will begin in Valenciennes, France, at the rate of 150,000 a year.

But North America remains the main focus of Toyota's offshore attention with about $8 billion invested so far, excluding technical operations, and there is more to come.

Production of the midsize Solara coupe starts this summer at Toyota Motor Mfg. Canada where annual capacity is now 200,000. The full-size Tundra pickup is due to come on stream late this year at a new plant in Princeton, IN, with capacity of 100,000. When the 400,000 cars and trucks made in California at New United Motor Mfg. Inc. and 500,000 cars in Kentucky are added in, Toyota's North American production capacity will total 1.2 million units.

Moreover, this fall Toyota will begin producing 300,000 4-cyl. engines for the Corolla in West Virginia, and in the year 2000 will add V-6 capacity of about 200,000.

"In the future, we'll make further facility expansions in the U.S. and Canada," he adds.

These include another 50,000 units in Indiana, reportedly an all-new sport/utility vehicle based on the Tundra, and possibly a new model of some kind designed specifically for North America.

Sales of U.S. vehicles in Japan have fallen more than 30% in the last 15 months while Japanese vehicle exports to the U.S. grew 10% during the same period. Still Mr. Okuda says, "I don't anticipate trade problems. I believe the Japanese market is open, and I haven't heard any complaints from the Big Three. (He's just turned off his hearing aid.)

"One of Toyota's objectives in establishing a manufacturing presence around the world and procuring components outside Japan is to put in place a system that will not be impacted by exchange rate fluctuations and sharp changes in demand," Mr. Okuda explains. "As a result of these efforts, we hope to produce and sell 6 million vehicles worldwide early in the 21st century."

He points out that during fiscal 1997 ending March 31, a 1 fluctuation against the U.S. dollar had about a 10 billion ($70.9 million) effect on Toyota's pre-tax profits, up or down, depending on which way the currencies moved. In his opinion, an appropriate exchange rate today would be around 110 to 120/$1, not the current 140 that is a windfall for Toyota exports.

In the next 10 years, Mr. Okuda believes environmental technologies, including more fuel-efficient engines and more sophisticated electronic controls, will become increasingly important to consumers, particularly in emerging automotive markets such as China and India.