The Nikkei business daily reported on Thursday that Nissan Motor Co and Honda Motor Co are also participating in the programme, being led by the government, which is providing 2 billion yen (US$18.53 million) over five years.

Japan's New Energy and Industrial Technology Development Organization (NEDO), as well Honda and Nissan, denied the automakers were part of the project.

The paper said the companies, along with Toyobo Takagi Seiko Corp and researchers from the University of Tokyo, aim to be able to mass produce the material by the mid-2010s and to make vehicles 40 percent lighter than steel-use cars.

Spokeswomen at both Honda and Nissan said they were exploring various new materials to use on vehicles but denied they were developing a new carbon fibre material with Toray and others.

Nissan said Toray currently supplies it with carbon fibre material, which it uses in high-end models such as the GT-R and 350Z sports cars and the Infiniti G35/G37 coupe in components such as the propeller shaft.

The Nikkei daily said the use of carbon fibre will likely improve fuel efficiency and reduce carbon dioxide emissions by 30 percent.

One of the issues is the high price of carbon fibre, but the cost gap with steel is expected to narrow over time as steel prices continue to rise, it said.

The NEDO spokeswoman said the government is also researching the further use of aluminium and other metals to replace some steel use on vehicles. Some cars already have an aluminium body to reduce weight but the cost is still prohibitive.

The companies also plan to develop technology to recycle carbon fibre to reduce production cost, the paper said.

Toray ended the morning session at 591 yen, up 29 yen. Mitsubishi Rayon was at 360 yen.

Nissan gained 0.1 percent to 833 yen, while Honda rose 2.7 percent to 3,800 yen. The Nikkei average was up 1.3 percent. (US$1=107.93 Yen) (Reporting by Sachi Izumi and Chang-Ran Kim; Editing by Michael Watson)