The U.S. aircraft giant has had to cede ground to its European foe nearly everywhere else, including at home. Airbus has outpaced it globally in deliveries for the past nine years and in orders since 2008. Airbus has even had some success selling its A380 super jumbo to new carriers in Japan.

Japan remains, however, a fortress for Boeing, which it dominates with a 90 percent market share. Flag-carrier Japan Airlines has never bought a European jet, while the Dreamliner’s new owner, ANA, has already phased out some of its aging single aisle Airbus A320s.

Some 500 spectators flocked to Tokyo’s Haneda Airport to catch a glimpse of the first twin-engine, lightweight jetliner, which cruised in under a clear autumn sky before smoothly landing at around 9:04 a.m. (0004 GMT).

Onlookers, many having arrived hours earlier to secure a good view, applauded and thronged to photograph the aircraft, whose blue and white fuselage had a big 787 emblazoned across its 58-meter (190 ft) body.

“I arrived at the airport around midnight and spent the night at the international terminal. I just couldn’t sleep at all because I was too excited,” said Shuichi Urakawa, a 19-year-old university student who skipped his classes to see the 787.

The jetliner has a backlog of 821 orders — nearly a 10th of those from Japan — built up over three years of setbacks as Boeing engineers dealt with glitches and parts hold-ups to build the aircraft, which Boeing says will deliver a 20 percent improvement in fuel efficiency.

The twin-engine aircraft boasts the latest features aimed at giving passengers a more comfortable flight and winning over airlines trying to garner business in a fiercely competitive air travel market.

They include improved cabin air, larger windows that can be electronically dimmed and, in a nod to Japanese sensibilities, toilets with bidets.

“I am fascinated by the 787′s design. It really makes me feel that I am living in the 21st century,” said 41-year-old office worker Kenji Watanabe, who also took the day off from work.

Boeing needs to follow Wednesday’s arrival with a steady stream of other flights from assembly plants in Seattle to guarantee the loyalty it counts on to keep Japan a satisfied customer, one of the few places it has fended off Airbus.

ANA, Japan’s biggest airline by passenger traffic, inked the first order in 2004 and now expects to have 20 Dreamliners by March 2013 and receive all 55 jets it has ordered by March 2018 as it looks to lower fuel and other costs to better compete.

ANA’s president, Shinichiro Ito, told Reuters this month that the company was in big trouble as it had to push back its business plans because of a repeated delay in 787 deliveries.

Firmly planted in the American sphere after its defeat in World War Two, Japan could always be relied on by U.S. aircraft makers to buy American, particularly during trade friction in the 1980s and 1990s as Japan sought to calm American emotions by buying billions of dollars worth of made-in-America jets.

That incentive has waned as China became the target of American protectionism. Boeing, whose corporate headquarters are in Chicago, has industrial ties in Japan dating back almost six decades that now equate buying Boeing with buying Japanese.

More than a third of the Dreamliner is built by Japanese companies, including Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Fuji Heavy Industries.

The wings on the 787 parked on the tarmac at Haneda were made in Japan by Mitsubishi Heavy, the first time that a foreign contractor has built the most complex mechanical component of an aircraft for Boeing.

Pride in Japanese aviation technology is helping fuel enthusiasm for the American aircraft. Tickets for the 787′s first scheduled commercial flights to Hiroshima and Okayama in western Japan on November 1 sold out minutes after going on sale, an ANA spokesman said.

A special chartered promotional flight to Hong Kong on October 26 attracted applications from 25,505 people for the 100 seats made available to the public. A pair of tickets ANA put out on the Yahoo Auction site for charity sold for 890,000 yen ($11,652.265).

($1 = 76.380 Japanese yen)

(Editing by Tim Kelly and Matthew Driskill)

The comment came after the U.S. aerospace giant, along with Lockheed Martin (LMT.N: Quote, Profile, Research, Stock Buzz) and a consortium of European countries, submitted bids to produce Japan’s next mainstay combat aircraft in a deal that could be worth up to $8 billion.

Japan, which is facing a resurgent China and its growing military as well as threats from North Korea, plans to decide this year how it will replace its current fleet of aging F-4 Phantom fighters with about 40 new combat airplanes.

Phillip Mills, Director of Boeing’s Japan FX Capture Team, said Japanese makers could supply about three quarters of Super Hornet components if Japan opted for the fighter jet.

There has been great interest in how much of next-generation fighter jet-related jobs will be outsourced to the Japanese industry, which has been battered by gradual but consistent shrinkage of the defense budget.

“If you came to the Boeing production line, everything you saw Boeing doing in St Louis would be available or is available for Japan industry to do,” Mills told Reuters in an interview.

“It’s clear that we are going to be somewhere in the 75 percent area,” Mills added, referring the percentage of F-18 component production that the company could outsource to Japanese makers.

Japanese fighter jet and aeroplane components makers include top defense contractor Mitsubishi Heavy Industries (7011.T: Quote, Profile, Research, Stock Buzz), Kawasaki Heavy Industries (7012.T: Quote, Profile, Research, Stock Buzz) and IHI (7013.T: Quote, Profile, Research, Stock Buzz).

Boeing’s F/A 18 Super Hornet is set to compete against Lockheed Martin’s F-35 Joint Strike Fighter and the Eurofighter Typhoon made by a consortium of European countries for the contract.

Mills said the high rate of planned outsourcing to Japanese companies, competitive pricing and ability to deliver on time give Boeing a competitive edge against the competition.

“The lower risk and affordability and licensed production we are offering is, I think, as good as they are going to get . so all and all we are feeling pretty good about it,” he said.

“We’ve offered an extremely fair and competitive price for not only initial aircraft but also for licensed production aircraft.” said Mills.

He declined to specify the offer price.

Kazuya Sakamoto, professor at Japan’s Osaka University, said the Lockheed Martin F-35′s stealth, or radar-evading, capability gives it an advantage over the competition, although its cost overruns and schedule slips have cast doubts over its prospects.

Fighter jets’ stealth capability has drawn heavy attention in Japan since China, which has a long-running territorial dispute with Japan, in January confirmed it had held its first test flight of the J-20 stealth fighter jet.

Mills said Boeing’s multi-role Super Hornet comes with a stealth capability, but the rival F-35 is “stealthier.”

Lockheed Martin, the world’s biggest defense contractor, which also submitted its proposal to Japan earlier on Monday said the F-35 stealth jets would deliver “unmatched cost-effective capability for Japan’s defense, now and well into the future.”

“We are committed to an enduring F-35 partnership with Japanese industry to deliver F-35′s transformational 5th generation capability for Japan’s long-term national security,” John Balderston, Director of the Japan F-35 Campaign, said in a statement.

Meanwhile, a consortium of European companies that makes the Eurofighter Tyhpoon said that fighter jet could be manufactured, maintained or integrated in Japan under license and that the aircraft’s crucial data and software source code could also be handed out to Japan.

Some media reports have said U.S. makers have a better chance of winning the deal since Japan may shy away from picking European fighter jets out of fear that doing so could further ruffle its U.S. ties, already hurt by disputes over the relocation of the U.S. Marines’ airbase in southern Japan.

Meanwhile, the head of U.S. military forces in Asia and the Pacific predicted that Japan’s choice of a new multibillion-dollar fighter fleet would reflect plans to stay “very complementary” with U.S. air forces.

(Additional reporting by Tim Kelly in Tokyo, and Jim Wolf in Washington D.C.; Editing by Matt Driskill, Lincoln Feast and Hans-Juergen Peters)

“I hope my wife will understand my hobby,” one 40-something
man says, opening his mouth widely around the English words.

He is one of legions of Japanese businessmen, or
“salarymen,” struggling with a language they thought they had
left behind them in school as fears mount that the growing push
by Japanese companies into overseas business will mean a dark
future for them without usable English.

This is especially true these days, with the strong yen and
a lagging domestic market prompting more firms to look overseas
for business opportunities essential for their bottom lines.

“I had a business trip to Amsterdam last year and that
really was tough. My boss spoke no English, and I had to speak
English for the first time in 10 years,” said Masahide
Tachibana, a 39-year-old software developer.

Tachibana now gets up at 5:00 a.m. to take morning lessons
at a central Tokyo branch of Gaba, an English language school.

“I’ve always wanted to brush up my English and that business
trip ignited my aspirations,” said Tachibana, as around him
other businessmen and women pack up and hurry to work after
their 45-minute, one-on-one lessons.

Japan , despite being the world’s third-largest
economy and a major export powerhouse, is known for its poor
English-speaking ability even though six years of study are
required in middle and high school.

The country’s average score on the TOEFL iBT, a
computer-based test of English as a foreign language, in 2010
ranked 27th among 30 Asian countries, below Mongolia and
Turkmenistan.

Only 9 percent of 1,156 white-collar workers surveyed by
Recruit Agent, a recruiting firm, claim to be able to
communicate in English. Many respondents evaluated their
speaking and listening aptitude as “Barely.”

But things are starting to change, prompted by a growing
sense of urgency about employment.

NO ENGLISH, NO JOBS?

The first push came from online retailer Rakuten’s 2010
decision to make English their official language. Fast
Retailing, the operator of the Uniqlo apparel chain, also wants
to make English its official language by 2012 and test its
employees for proficiency.

“Rakuten’s decision triggered a shock-wave that’s extended
to many other companies, especially manufacturers, because they
too are under pressure to expand outside a shrinking home
market,” said Yuriko Tsurumaki, a Recruit Agent spokeswoman.

“Not all Japanese firms have businesses overseas for the
time being but people are seeing possibilities and sharing a
sense of crisis (about English).”

Now nearly half of Japanese companies planning new hiring
require applicants to be “business English users” – a big rise
from 16 percent in July 2009, she said.

Highlighting fears among businessmen with poor English, a
number of companies, including chip maker Elpida Memory and
Murata Manufacturing Co, a maker of parts used in mobile phones
and computers, are shifting some production outside Japan to
cope with a currency near record highs.

The surging yen is also encouraging Japanese firms
to acquire businesses overseas to build more revenue pillars,
with trading house Itochu buying Britain’s tyre seller Kwik Fit
for $1 billion.

As a result, Japan’s foreign language education market is
growing, with learners more than willing to fork out plenty of
money on lessons, DVDs or e-learning.

It rose 1.6 percent to $9.8 billion in 2010 from a year
earlier, said Yano Institute of Research, and is set to grow
another 1.8 percent this year, making it a rare bright spot amid
lagging Japanese private consumption.

“This is just the start of Japan’s real globalisation.
Everyone is feeling that they’ll see a no-English-no-job
situation,” Gaba’s president Kenji Kamiyama told Reuters in a
recent interview.

Thanks to avid English learners, Gaba says it has almost
achieved its student number target for the year and predicts the
upbeat trend will likely last for a while. Gaba says that on
average, a student spends about 50,000 yen ($654) a month –
against an average 36,500 yen allowance for Japanese
businesspeople.

Meanwhile, Rosetta Stone Japan, a Japanese unit of Rosetta
Stone which provides software-based language-learning, says
revenues for their English learning software more than tripled
last year from a year ago. This year sales are seen doubling as
more people spend for the company’s software package priced at
around 59,700 yen.

“The English crisis shows the rapidly changing environment
Japanese firms face. Most Japanese businessmen, for a long time,
avoided an English-speaking environment,” Gaba’s Kamiyama said.

“But they now know that they can’t stay that way… It’s
been a real kick in the pants for them.”
($1 = 76.420 Japanese Yen)

(Editing by Elaine Lies)

Japanese brewers have been on an overseas spending spree, mainly in Asia and Oceania due to their proximity and growth prospects, as they look to make up for a contracting home market.

Overseas expansion is crucial to boost revenue growth as Asahi, the maker of Japan’s top-selling “Super Dry” beer, struggles with a home beer market that shrank more than 15 percent in shipment volumes in the last decade.

In its biggest acquisition, Asahi said on Thursday it will buy all outstanding shares of Flavoured Beverages Group, the parent company of Independent Liquor known for its “Woodstock Bourbon” and “Vodka Cruiser” brands, from private equity firms Unitas and Pacific Equity Partners (PEP).

“With domestic demand weak, I have absolutely no disagreement with Asahi’s strategy of seeking growth overseas,” said Shigeo Sugawara, senior investment manager at Sompo Japan NipponKoa Asset Management.

“The real issue is whether or not Asahi will be able to speed up profit growth at the companies it has bought and how quickly it will see a return on its investment,” he said.

Independent Liquor is New Zealand’s top-ranked ready-to-drink cocktail maker and is No.3 in Australia. Last year, it had NZ$414 million ($348 mln) in revenue, but reported a loss of NZ$23 million.

Excluding its purchase of Independent Liquor, Asahi has spent nearly 225 billion yen ($2.9 billion) in the past five years, snapping up targets including taking a stake in China’s Tsingtao Brewery and buying the Australia business of Schweppes.

Asahi’s shares ended 1.7 percent higher after the announcement of the deal, which had been widely flagged by media reports in recent weeks, outperforming a 1.3 percent fall in the benchmark Nikkei average .N225.

Asahi has also announced plans to buy Permanis, the Malaysian bottler for beverage giant PepsiCo (PEP.N: Quote, Profile, Research, Stock Buzz), for about $275 million and the mineral water and juice business of Australia’s P&N Beverages for about $200 million.

To help build its position in the Oceania region, it unveiled plans last month to buy out New Zealand fruit juices and soft drinks producer Charlie’s Group CHA.NZ.

Asia has seen a spate of deals in recent months.

Diageo (DGE.L: Quote, Profile, Research, Stock Buzz) has won Chinese approval to take control of Sichuan Swellfun (600779.SS: Quote, Profile, Research, Stock Buzz), China’s fourth-largest premium white spirits. On Thursday, Australian brewer Foster’s (FGL.AX: Quote, Profile, Research, Stock Buzz) rejected a $10 billion offer from rival SABMiller (SAB.L: Quote, Profile, Research, Stock Buzz) for the second time as shareholders hold out for a better offer.

MORE ACQUISITIONS?

At a news briefing, Asahi President Naoki Izumiya told reporters his company would now focus on building its Southeast Asian network, but acknowledged the company needs to look further abroad.

“There is obviously a limit to expansion in Southeast Asia, and Asia as a whole, and if we only do it in Asia, it will not be enough to meet our goals,” Izumiya said.

He was referring to Asahi’s target to boost annual group revenue to 2-2.5 trillion yen by the end of 2015, up from around 1.5 trillion yen last year, with a goal of an overseas sales ratio of more than 20 percent.

“So our first consideration is seeing what more can be done in China, Asia and Oceania, but after that, we will of course need to make efforts to consider good offers available outside of those areas,” Izumiya said.

With only a few targets available in the region, Japanese brewers have been shifting their focus outside of Asia.

This month, Japan rival Kirin Holdings (2503.T: Quote, Profile, Research, Stock Buzz) spent $2.6 billion to take a controlling stake in Brazilian beer and soft drinks maker Schincariol, in its first entry into the fast-growing South American economy.

In an interview last month, the overseas head at rival Sapporo Holdings (2501.T: Quote, Profile, Research, Stock Buzz) said the beer maker was expanding its scope of its potential targets as it seeks to build up its North American operations.

Independent Liquor earns more than 90 percent of its sales from Australia and New Zealand, but is eyeing an expansion into the United States and China.

The purchase of Independent Liquor will be financed with cash on hand and through loans, President Izumiya said.

Nomura Holdings (8604.T: Quote, Profile, Research, Stock Buzz) and Rothschild ROT.UL are advising Asahi, which aims to complete the Independent Liquor deal by September. UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz) is the financial adviser for PEP and Unitas.

Private equity firms Unitas and PEP acquired Independent Liquor in 2006 for more than $1 billion, and China’s Bright Food Group has been among the list of possible buyers, sources had told said.

Unitas is a buyout group formerly known as CCMP. That group spun out of J.P. Morgan when the bank decided to hive off its private equity arm. PEP is a buyout fund focused on investments in Australia and New Zealand.

($1 = 1.190 New Zealand Dollars) ($1 = 76.565 Japanese Yen)

(Additional reporting by Mayumi Negishi, Emi Emoto and; Yuka Obayashi; Editing by Nathan Layne and Anshuman Daga)

Asahi said in a statement it will buy all shares outstanding
of Flavoured Beverages Group, the parent company of Independent
Liquor which is known for “Woodstock Bourbon” and “Vodka
Cruiser”, from private equity firms Unitas and Pacific Equity
Partners. It aims to complete the deal by September.

Overseas expansion is a crucial component of Asahi’s plan to
boost annual group revenue to 2-2.5 trillion yen in 2015, up
from around 1.5 trillion yen now. The maker of Japan’s
top-selling “Super Dry” beer and soft drinks aims to generate
20-30 percent of its sales overseas.

Over the last five years, Asahi has clinched a number of
overseas deals including taking a stake in China’s Tsingtao
Brewery and buying the Australia business of Schweppes.

In addition, the firm has also announced plans to buy
Permanis, the Malaysian bottler for beverage giant PepsiCo
, for about $275 million and the mineral water and juice
business of Australia’s P&N Beverages for about $200 million.
[ID:ID:nL3E7I400D]

To help build its position in the Oceania region, it
unveiled plans last month to buy out New Zealand beverage
producer Charlie’s Group.

Asahi, which competes with Kirin Holdings , Sapporo
Holdings , and unlisted Suntory Holdings in Japan, said
it will hold a press conference at 10 a.m. (0100 GMT) in Tokyo.
Asahi President Naoki Izumiya will attend the briefing.

Asahi’s shares rose 2 percent to 1,621 yen after Thursday’s
announcement of the deal, which had been widely flagged by media
reports in recent weeks. That outperformed a 0.5 percent fall in
the benchmark Nikkei average .

Independent Liquor, which was founded in Auckland, New
Zealand in 1987, had NZ$414.4 million in revenue last year, but
recorded a loss of NZ$22.7 million. The firm is eyeing expansion
into the United States and China.

Private equity firms Unitas and Pacific Equity Partners
acquired Independent Liquor in 2006 for more than $1 billion,
and China’s Bright Food Group has been among the list of
possible buyers, sources had told Reuters.
($1 = 76.565 Japanese Yen)

(Reporting by Mariko Katsumura and James Topham; Editing by
Chris Gallagher and Nathan Layne)

Japan’s property market, struggling to regain strength after
the global financial crisis, was hit again by the March
earthquake as would-be homebuyers delayed purchases and
companies postponed expansion plans.

But Mitsui Fudosan, which competes with second-ranked
Mitsubishi Estate Co , said sales of its apartment units
have been unexpectedly strong despite the disaster, while its
office leasing business also generated a small increase in
profit thanks to new building openings.

“Thankfully the March earthquake had little negative impact
on our apartment sales. I think we are moving towards outpacing
our annual operating profit target,” Mitsui Fudosan executive
managing director Hiroshi Asai told reporters.

Mitsui Fudosan, which earns nearly three-quarters of its
profit from office and building leasing, booked an operating
profit of 21.97 billion yen ($282 million) for its April-June
first quarter, up from 18.36 billion yen a year earlier.

Its apartment and house sales division turned a profit of
3.3 billion yen, swinging from a year-earlier loss of 1.9
billion yen. Profit from building leasing edged up 2.2 percent
to 24.3 billion yen.

Mitsui Fudosan left unchanged its annual forecast of a 115
billion yen profit for the year to March, down from 120.1
billion yen last year. Its forecast is lower than the average
forecast for a 120.7 billion yen profit in a survey of 24
analysts by Thomson Reuters I/B/E/S.

Tokyo’s office market, the world’s second largest, still
faces a rocky road as a number of big office buildings are
expected to open this year and next.

The massive supply could further weigh on an office market
already struggling with falling rents after the global financial
crisis while the earthquake in March dulled corporate interest
in expansion.

The average office vacancy rate for Tokyo’s five central
wards stood at 8.81 percent in June, near its post-war record of
9.19 percent marked in March, according to data from office
broker Miki Shoji.

More than 3.3 million square metres of office space –
nearly the size of New York’s Central Park — is expected to be
added to supply in 2011 and 2012, threatening to compound
vacancy worries.

Asai said the average vacancy rate for Mitsui Fudosan’s
office buildings in the Tokyo area stood at 4.4 percent in June,
and is likely to remain above 4 percent for a while.

Shares of Mitsui Fudosan, which owns a 54-storey office
building on Manhattan’s Avenue of the Americas, have lost about
11 percent since the start of this year, underperforming a 2.9
percent fall in the benchmark Nikkei 225 average during
that period.

Before the announcement, Mitsui Fudosan shares ended down
0.9 percent at 1,439 yen. Shares of rival Mitsubishi Estate, set
to announce results on Friday, fell 1.7 percent to 1,390 yen,
while Tokyo’s benchmark Nikkei average dropped 1.5
percent.

($1 = 77.965 Japanese Yen)

(Reporting by Mariko Katsumura; Editing by Chris Gallagher)

Battling falling prices for its compact cameras, Ricoh hopes to establish a presence in the profitable upmarket single-lens reflex camera segment, the Nikkei business daily said.

The two companies will hold a news conference about the transaction at 0730 GMT.

The deal will go through in October, Hoya said in a filing to the Tokyo Stock Exchange.

Shares in Hoya ended up 4 percent at 1,845 yen, after climbing as high as 6 percent to 1,888 yen on the news, while Ricoh was down 0.2 percent, in a broader market climb of 0.5 percent.

Hoya, which bought Pentax in 2007 mainly to gain access to its medical technology, had been widely expected to sell off the camera business.

Pentax is the world’s tenth largest digital camera brand by shipments, with just 1.5 percent of the market, according to research firm IDC.

Sales of Pentax cameras dropped just over 13 percent in the year ended March 2011, amid fierce price competition in the compact camera market.

Copier and printer-maker Ricoh, which aims to shed nearly 10 percent of its workforce to improve profits, also has a digital camera business, but sales are too small to feature in global data.

(Additional reporting by Emi Emoto; Writing by Isabel Reynolds; Editing by Edwina Gibbs)

The two companies may announce the agreement as soon as
Friday, two of the sources said.

Shares in Hoya jumped more than 6 percent on the news, while
Ricoh slipped about 0.5 percent, in a broader market up 0.6
percent .

Hoya, which bought Pentax in 2007 mainly to gain access to
its medical technology, had been widely expected to sell off the
camera business.

Pentax is the world’s tenth largest digital camera brand by
shipments, with just 1.5 percent of the market, according to
research firm IDC.

Sales of Pentax cameras dropped just over 13 percent in the
year ended March 2011, amid fierce price competition in the
compact camera market.

Copier and printer-maker Ricoh , which aims to shed
nearly 10 percent of its workforce to improve profits, also has
a small digital camera business.

A spokesman for Hoya declined comment, while Ricoh could not
immediately be reached.

(Additional reporting by Emi Emoto; Writing by Isabel Reynolds;
Editing by Edwina Gibbs)

Reconstruction-related demand will help push the nation’s annual housing starts above 900,000 units, or 20 percent above pre-quake levels for the next few years, Chief Executive Isami Wada told the Reuters Rebuilding Japan Summit on Wednesday.

“Strong housing demand, in general, is likely to last another 2-3 years across Japan,” he said, adding that a revised outlook would likely come when it reports midyear results.

“Demand for houses with their own power generation systems is also likely to grow,” he said, after the March 11 disaster totally or partially damaged some 450,000 houses and shut down nuclear power plants, causing power shortages.

In March before the earthquake, Sekisui forecast it would make an operating profit of 63 billion yen ($785 million) for the financial year to January 31, up 12 percent from the previous year. The forecast matches the market consensus.

That means Sekisui is well on its way to achieving its midterm target of a 68 billion yen profit by January 2013 by selling more eco-friendly houses and expanding overseas, where the Osaka-based company had little presence until two years ago.

Wada, who had just returned from a business trip to Shanghai the previous day, said Sekisui’s push to expand abroad means overseas revenues will likely surpass its domestic revenue in 15 to 20 years.

“We are targeting countries with high populations and economic growth,” said Wada, without disclosing which projects he has in the pipeline.

But the 70-year-old CEO did say that his firm is keen to join a $5.3 billion waterfront development project in Sydney being led by Australia’s Lend Lease (LLC.AX: Quote, Profile, Research, Stock Buzz) if there is an opportunity.

Sekisui first stepped outside its home market in 2009 when it forged a residential property business alliance with the Australian real estate giant.

Sekisui, which competes with domestic rivals such as Daiwa House Industry Co (1925.T: Quote, Profile, Research, Stock Buzz), has also kicked off residential property developments in the United States and Singapore, and last month launched a subsidiary in China’s Suzhou city.

($1 = 80.270 Japanese Yen)

(Reporting by Mariko Katsumura; Editing by Chris Gallagher)

Toyota has struggled to restore output after a massive 9.0 earthquake in March rocked northeastern Japan and forced automakers to slash output. The ensuing nuclear disaster and power shortages have compounded their woes.

The production disruption will likely see Toyota lose its title as the world’s largest automaker this year.

“This is probably another conservative estimate from Toyota, but it’s predicting a loss in the fiscal first half so we can tell how serious the damage from the earthquake was,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments in Tokyo, adding that shares in the company may fall on Monday.

Toyota reiterated its plan to restore output to pre-quake levels by November, helped by a recovery in the supply chain for key parts, and expressed confidence it could claw back market share lost as a result of the quake.

In an encouraging sign for automakers, chipmaker Renesas Electronics Corp said on Friday it now expected to restore supply capacity lost due to quake damage by the end of September, one month earlier than previously planned.

Renesas, the world’s biggest maker of microcontrollers, had become one of the biggest bottlenecks in the automotive supply chain that forced car firms to curb production.

“Once our product supply is back to normal, we can compete with no problem. We have the resources and are fully charged,” Toyota Chief Financial Officer Satoshi Ozawa said at a briefing in Tokyo.

But Ozawa warned that Toyota was getting hammered by the strong yen and called on the Japanese government to take action to rein it in.

The Japanese currency hit a one-month high against the dollar this week and is now about 5 yen stronger than the 85 per dollar level that Toyota sees as the break-even point for profiting on production in Japan.

STRUCTURAL WEAKNESS

Toyota said it expects operating profit to fall 35 percent to 300 billion yen ($3.7 billion) in the financial year to March 2012, well short of the consensus for a 434 billion yen profit in a poll of 23 forecasts by Thomson Reuters I/B/E/S.

The forecast, which the company would have announced in May along with its annual results if not for the earthquake, incorporates a 100 billion yen negative impact from the strong yen.

“Structural weakness remains for Toyota, as it has a higher portion of domestic production than Honda and Nissan, which makes it vulnerable to the yen’s strength,” said Park Sang-Won, an analyst at Eugene Investment & Securities in Seoul.

Toyota forecast global sales would fall 1 percent to 7.24 million vehicles in the year to March. The figures include sales at truck maker Hino Motors Ltd and compact car maker Daihatsu Motor Co.

The drop is expected to place Toyota behind General Motors and possibly Volkswagen AG in the global vehicle sales rankings this year, and reflects a loss of share to smaller rivals such as South Korea’s Hyundai Motor Co, which has been nipping at its heels for years.

Toyota played down the possibility.

“We don’t see it as necessary to be the largest automaker in the world,” Ozawa said. “The most important thing is creating a stable business base.”

Toyota said on Friday it expects the dollar to average 82 yen in the current financial year to next March 31, against an average currency rate of 86 yen per dollar last year.

The yen’s persistent strength has raised questions about the rationale of Toyota’s commitment to producing at least 3 million cars in Japan each year.

Ozawa said it was possible that Toyota President Akio Toyoda was rethinking his position.

“We are in a situation where it’s becoming impossible for Japan’s manufacturing industry to do business,” Ozawa said.

“Our president has been saying that he would never want to see Japan’s manufacturing fading from view, but he also said recently that he was unable to respond when someone made the comment that Toyota’s production should not be handled only in Japan.”

Toyota’s shares have fallen 7.5 percent since the disaster, underperforming the benchmark Nikkei 225 average, which has lost 6.5 percent. Its shares on Friday rose 0.9 percent to close at 3,300 yen before the company released the profit forecast.

(Editing by Matt Driskill and Edmund Klamann)