Japan's automakers will further lag global competitors in electrification, S&P Global Ratings said in a Wednesday release.
The country's vehicle producers have responded to the rising demand for low-carbon vehicles by offering hybrids, but this is unlikely to make them competitive with foreign peers, S&P said.
The strategy will also fail to anchor Japan's long-term decarbonization efforts, while the country's policy conditions do not encourage automakers to accelerate their shift to full electrification, the rating agency said.
Japan's policies have focused on incentivizing demand, with no decisive incentives for the producers, unlike other markets such as South Korea and Europe where both sides are being prioritized, S&P said.
S&P considers Japan's battery electric vehicle and plug-in hybrid adoption as among the laggards in G-7 countries.
The country's auto sector decarbonization mainly stems from fuel efficiency rather than electrification, with above 95% of electrified auto sales still accounting for internal combustion engines, S&P said.