Honda Motor said yesterday its net profit for the three months ended December fell nearly 40 per cent from a year ago as the yen’s strength overshadowed cost-cutting efforts and as demand in Japan slowed.

The automaker posted a net profit of 81.1 billion yen (€0.72 billion) for the quarter, missing the average Nikkei forecast for a 93 billion yen net profit.

Sales fell 5.8 per cent to 2.1 trillion yen in the three-month period.

Honda said that if calculated at the same exchange rate as the corresponding period last year, net sales for the quarter would have decreased by approximately 0.8 per cent.

For many Japanese firms, the yen’s surge against the dollar and the euro has mitigated a post-financial crisis revival in demand and undermined the benefits of earlier cost cuts and restructuring.

More companies are considering moving production overseas to stay competitive against rivals benefiting from weaker currencies in their home countries. Honda’s operating profit slumped 29 per cent to 125.6 billion yen.

Honda said the fall was “due primarily to the unfavourable currency translation effects and decreased sales in the automobile business in Japan”.

It warned that the economy of its domestic market was “at a standstill”, with the slow recovery of consumer spending and prolonged high unemployment still keeping demand at home weak.

Auto demand eased in the period as government incentives to spur car buying expired.