Toyota Motor Corp., which built 45 percent of its cars in Japanlast fiscal year, may need to produce a greater proportion overseasas the yen trades near a record against the dollar.

“How much longer should we insist on producing in Japan?” saidChief Financial Officer Satoshi Ozawa, seated next to PresidentAkio Toyoda at a press conference in Tokyo today. “I feel stronglythat our efforts may have exceeded the limits of what is possiblein dealing with the yen's impact.”

While Toyoda said he wants to protect jobs and Japan'smanufacturing culture, the automaker's profitability is sufferingwith the yen close to a post-World War II high and German and SouthKorean rivals benefiting from weaker currencies and free tradeagreements. The currency and the impact of Japan's recordearthquake contributed to Toyota's fourth-quarter profit falling 77percent from a year earlier, the company said.

The stronger yen cut net income by 290 billion yen ($3.58billion) in the year ended March 31, Toyota said. That was morethan the 110 billion yen cost from the 9-magnitude temblor andtsunami, which forced Toyota to shut down production at all itsJapanese plants for two weeks and led to a plunge in domesticsales.

Japan Production Toyota's ratio of domesticproduction is higher than Japanese rivals. Nissan Motor Co., thenation's second largest car company after Toyota, made 25 percentof its vehicles in Japan last fiscal year. Third-ranked Honda MotorCo. made 26 percent of its cars at home.

“I fully understand that we can't go on with just a desire toprotect manufacturing in Japan,” Toyoda, 55, said.

The country's currency soared to a postwar high of 76.25 perdollar on March 17. The yen, which traded at 80.96 today, mayapproach the record level again as “risk-averse” Japanese investorsrefrain from investing in overseas assets following the nation'sbiggest earthquake, according to JPMorgan Chase & Co.

The currency is also likely to continue rising because of weakerdemand for the dollar as the U.S., the world's largest net debtornation, keeps borrowing costs low, said Junya Tanase, chiefcurrency strategist at JPMorgan in Tokyo.

Balancing Production The comments contrast withToyoda's previous pledge to keep at least 3 million units of annualproduction in Japan.

Ozawa intends to advise his colleagues and Toyoda on the need torevise the balance of domestic and overseas output and may questionthe need to keep 3 million units in Japan, he said.

“The strong yen has been a problem for a while, and it barelyweakened after intervention” by the Group of Seven nations on March18, said Yuuki Sakurai, president at Fukoku Capital Management Inc.in Tokyo. “Toyota and other Japanese manufacturers need to assumethat the yen will gain to between 75 and 80 yen.”

Toyota said fourth-quarter net income fell to the lowest in 11/2 years amid parts shortages following the quake. Profit for thethree months ended March 31 fell to 25.4 billion yen from 112.2billion yen a year earlier, it said.

Quarterly profit missed the 104 billion yen average of fouranalyst estimates compiled by Bloomberg in the past four weeks.Sales dropped 12 percent to 4.64 trillion yen.

GM, Volkswagen Output disruptions may causeToyota to fall behind General Motors Co. and Volkswagen AG inglobal sales this year. The disaster follows Toyoda's first fullyear as president, dominated by recalls of more than 10 millionvehicles for problems related to unintended acceleration.

Toyota said today it expects domestic and overseas production tobegin recovering in June, at least a month earlier than previouslyannounced. It maintained a forecast that output will return tonormal levels by November or December.

“Toyota's production will most certainly fall from last year'slevel, while both GM and Volkswagen will make big gains in theU.S., Europe and China,” said Koji Endo, an auto analyst atAdvanced Research Japan in Tokyo. The Japanese carmaker's globaloutput may decline to less than 6.5 million vehicles this year from8.4 million in 2010, he said.

Toyota's global vehicle sales dropped 12 percent from a yearearlier to 1.79 million in the three months ended March 31. Thedecline was led by a 37 percent decrease in Japan. Sales in NorthAmerica fell 12 percent to 551,000 while in Asia, excluding Japan,deliveries rose 23 percent to 345,000.

The carmaker may have lost output of 300,000 vehicles in Japanand 100,000 overseas through the end of April due to quake-relatedshutdowns, Executive Vice President Atsushi Niimi said April22.

Production Recovery Toyota's global output inJune will be about 70 percent of capacity, the company said. About30 parts remain in short supply following disruption caused by thequake, compared with 150 in April, Toyoda said.

The carmaker resumed output at all Japan plants at half ofnormal capacity on April 18. All of the company's factories wereclosed for two weeks following the quake, with hybrid carproduction resuming March 28.

Shares in the Toyota rose 0.6 percent to 3,270 yen at the 3 p.m.close of trading in Tokyo, before the earnings announcement. Thestock has dropped 10 percent since March 10, the day before theearthquake.

Forecast Like Honda, Toyota declined to providean earnings forecast for the fiscal year started April 1, citingthe impact of the earthquake on production. Toyota may issue aforecast in mid- June, Toyoda said.

The carmaker may post 311 billion yen in net income for thecurrent year, according to the average of 11 analyst estimates.

The recovery may also be hindered by electricity shortages inJapan after the earthquake cut the nation's power-generatingcapacity by 8 percent.

Chubu Electric Power Co., which supplies electricity to Toyota'sfactories in Aichi prefecture, decided earlier this week to shut anuclear plant in Shizuoka prefecture, west of Tokyo. Prime MinisterNaoto Kan requested the shutdown until the plant's tsunami defensesare improved, citing a government study that showed an 87 percentlikelihood of a magnitude-8 quake striking the area within 30years.

“We want to do our best in balancing the needs of the economyand the need to save power,” Toyoda said today.

Honda said April 28 its fourth-quarter net income dropped 38percent to 44.5 billion yen for the three months ended March 31.Nissan reports earnings tomorrow.

Bloomberg