Toyota Motor Corp., Japan's top automaker, launched the Pixis Space minivehicle manufactured by group company Daihatsu Motor Co., on Monday.
Minivehicles, or "kei," are defined under Japanese regulations as having maximum length of 3.4 meters (11.15 feet), width of 1.48 meters (4.86 feet), height of 2 meters (6.56 feet) and engine displacement of less than 660 cc.
Taxes are lower for minicars, which now make up about a third of Japan's annual vehicle sales.
Toyota is planning two more minicar models for the Japanese market, although it has not said when those will go on sale.
Toyota is targeting annual minicar sales of 60,000 in Japan for all three models in total.
The Pixis Space starts at 1.12 million yen ($14,700).
Minicars are popular not only for the tax savings but also with people who use cars for short commutes or grocery shopping, as well as with those who don't see cars as status symbols as did the older generation.
They are also easy to handle in Japan's crowded streets, and some come in cute designs that appeal to Japanese consumers. With Toyota entering the sector, competition is expected to step up in minicars.
Nissan Motor Co., Japan's No. 2 automaker, has a partnership with Japanese automaker Mitsubishi Motors Corp., under which Mitsubishi makes minicars for Nissan.Honda Motor Co. already sells several minicar models in Japan.
Honda sold 160,000 minicars last year, comprising about a quarter of its overall vehicle sales in Japan.