Japanese and Thai trade officials failed to reach a bilateral free trade agreement by a July 31 deadline but said negotiations were "99 percent complete" and talks would continue, Kyodo news reported on Sunday.
Japanese Economy, Trade and Industry Minister Shoichi Nakagawa arrived in Thailand on Sunday in a bid to conclude 17-month talks that have stumbled over Thai tariffs on Japanese industrial goods including those on Japanese luxury cars.
Kyodo quoted a Thai official as saying Thailand wanted to keep tariffs on Japanese luxury autos for another seven years.
But officials were upbeat about progress and said they had bridged gaps in the steel and agriculture sectors in talks on Sunday.
Kyodo cited the Thai Foreign Ministry's Permanent Deputy Secretary Pisan Manawapa as saying negotiations were almost complete.
Japan is Thailand's largest single trading partner. In 2004 Thai exports to Japan totalled $13.49 billion while imports from Japan were of $22.29 billion.
In the first half of this year, trade between the two countries was of $20.56 billion, Kyodo reported.
An FTA deal with Thailand would be the fifth for Japan, which already has agreements with Singapore and Mexico and struck a basic deal with the Philippines in November and Malaysia in May.