Toyota Motor Corp's 48 percent drop in quarterly profit highlighted its exposure to a firm yen, but the world's No.1 automaker raised its full-year outlook beyond market forecasts on stronger sales projections and cost cuts.

Japan's No.2 Nissan Motor Co is also expected on Wednesday to report a drop in third-quarter profits due to the stronger yen and falling demand in Japan and smaller rival Honda Motor Co has already posted weaker results for the period. But the decline at Toyota is set to be the deepest given its heavier exposure to unprofitable exports from Japan.

(The revised outlook) is slightly above the market consensus, but since the company had been widely expected to raise its forecast, it's no surprise, said Kazuyuki Terao, chief investment officer at RCM Japan in Tokyo. Compared with other Japanese automakers, Toyota has greater exposure to the domestic market and therefore is more subject to the negative impact of the country's slow economic growth.

BIG EXPORTER

Toyota exported more than half of its Japan-made vehicles last year, making a loss on many of them with the dollar well below the rate of 90 yen that President Akio Toyoda has said is the minimum to keep Japan's manufacturing sector competitive.

For the full year to March 31, Toyota raised its forecast for annual operating profit to 550 billion yen ($6.68 billion) from a cautious 380 billion yen, after profits for the first nine months exceeded that figure.

Toyota improved profitability by paring costs, helped by better than expected sales in Japan, the rest of Asia and Russia, senior managing director Takahiko Ijichi told a briefing.

We now expect to overcome rapid and acute yen appreciation, Ijichi said.

Still, analysts say, Toyota's disproportionately big Japanese operations -- it has 17 assembly plants across the group -- will remain the major drag on its earnings.

A survey of 23 analysts by Thomson Reuters I/B/E/S ahead of the results had forecast annual operating profit of 489 billion yen for Toyota.

Some industry watchers say Toyota could continue to suffer the lingering effects of last year's recall crisis, especially as consumers have more car models to choose from with the expansion of Volkswagen AG and Hyundai Motor Co in the United States.

The U.S. Department of Transportation is due later on Tuesday to release its long-awaited findings of the review of Toyota's electronic throttles over complaints of unintended acceleration -- the problem behind most of the recalls in the crisis.

This year should be a consolidation year for Toyota as they recover from the recall, said Neo Chiu Yen Vice President, Equity Research Asia, at ABN AMRO Private bank in Singapore.

I would like to see progress in rebalancing of their production footprint to mitigate eroding export margins. Toyota is quite dependent on the U.S. market.

Toyota nudged up its global sales forecast to 7.48 million vehicles from 7.41 million, with domestic sales expected to reach 2.02 million vehicles compared with an earlier prediction of 1.99 million. It kept its U.S. forecasts unchanged at 2.09 million units.

Toyota's October-December operating profit was 99.07 billion yen, down from 189.1 billion yen in the same period a year earlier, while net profit fell 38.9 percent to 93.63 billion yen.

Wide-ranging estimates from nine analysts surveyed by Reuters had put Toyota's third-quarter operating profit at an average 70.6 billion yen. Profits made in China are not counted on the operating level at Toyota, which reports under U.S. accounting rules.

Toyota, which stayed ahead of General Motors Co as the world's biggest automaker by a thinner margin last year, built 3.28 million vehicles in Japan last year, compared with 992,000 for Honda and 1.13 million for Nissan.

Toyota shares have risen 18 percent in the past three months versus a 13 percent gain in Tokyo's broad TOPIX index. Honda gained 22 percent and Nissan rose 13 percent.

Before the results were announced on Tuesday, Toyota ended trading unchanged from the previous day at 3,490 yen, while the TOPIX gained 0.4 percent.

(With additional reporting by Taiga Uranaka and Tim Kelly in Tokyo and Saeed Azhar; Editing by Michael Watson and Lincoln Feast)

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