JAPANESE car-making giant Toyota has reported a drop in profits of just on 21 per cent for their financial year that finished at the end of March.

The company has laid most of the blame for the poor result on a strengthening Japanese yen that makes it hard to price their vehicles competitively in foreign markets.

Toyota has forecast that the US dollar would average 105 yen this year, a ratio that is nowhere near as favourable for them as a US dollar that was worth about 120 yen for most of the previous financial year.

“Earnings results in the past few years have been largely helped by foreign exchange rates,” said Toyota’s president and chief executive Akio Toyoda, “but since the start of this year the tide has changed”.

Foreign exchange losses are reported to have decreased Toyota’s operating profit by 935 billion yen ($A11.15 billion) in the most recent financial year.

The yen’s gathering strength is creating a tough business environment for Toyota. Fluctuations in the yen’s value have a major impact on the company’s earnings given that it exports around half of its domestic production each year.

Every one yen move in the dollar to yen exchange rate reportedly affects its operating profit by 40 billion yen ($476 million).

Industry analysts have also pointed to other difficulties facing Toyota, particularly in the US where a residual demand for cars seems to now be drying up in favour of SUVs.

So far this year, overall sales of mid-sized sedans, such as Toyota’s Camry, are 15 per cent down in the US, which is bad news for Japanese car-makers, such as Toyota, who have traditionally relied on sedans in the model line-ups more than their western rivals.

There is an updated Camry due for launch in the US later this year which may help, but it comes at a time when car sales in general are flattening there.

Toyota’s profit slip in the US was not helped by having to increase sales incentives by $US250 ($A338) per car there last year. According to JD Power sales incentives in the US are currently averaging $US4000 ($A5405) per vehicle.

Analysts have also suggested that the profit slip will threaten Toyota’s capacity to fund ongoing large investments in new technologies such as artificial intelligence and autonomous cars.

“Given the size of Toyota, we must be able to sustain such R&D investment; that’s the only way in which we can achieve sustainable prosperity,” Toyoda said.

Toyota shares have lost about a quarter of their value in 2016 and the company has announced a share buyback of up to $US4.6 billion ($A6.2 billion) in a bid to support them.

Toyota Australia’s most recent full year result was an after tax profit of $236 million for the financial year ending March 31, 2016 and posted in June.

That result was up 22 per cent compared to the previous 2014/15 financial year that saw an after tax profit of $194 million.

The 2014 announcement that Toyota Australia would stop manufacturing and consolidate its corporate operations by the end of 2017, saw the company incur restructuring costs of $81 million in that financial year.

By Daniel Cotterill