Subaru maker Fuji Heavy Industries posted a 71% jump in quarterly operating profit on Friday and kept its full-year forecasts intact as it expects the new flagship Legacy car to drive a further recovery, Reuters reported.

Despite a sharp rise in the yen against the dollar, operating profit at Japan's niche maker of all-wheel-drive off-road vehicles was 15.49 billion yen ($US145 million) for the July to September second quarter, bringing six-month profits roughly in line with the company's estimate, the news agency said.

Reuters noted that, among Japanese car makers, Subaru, held one-fifth by General Motors, is especially vulnerable to a weak dollar since North America accounts for over a third of its sales.

For the year to next March, Subaru is still expecting operating profit to fall 11% to 45 billion yen as it pours money into developing new models for future growth, the report added.

"We had set these (profit) levels as part of our five-year business plan and the investment spending will start to bear fruit starting next year," executive vice president Shunsuke Takagi reportedly told a news conference.

Reuters noted that, as part of its new strategy, Subaru is looking to improve profit margins by crafting an image as a premium brand like Germany's BMW, starting with a high-end crossover vehicle, dubbed "XUV", due to hit US showrooms next year.

Second-quarter net profit reportedly fell 43% to 7.66 billion yen due to difficult comparisons from the year before, when the company booked a special gain of 4 billion yen on stock sales. Revenue inched up 0.3% to 383.25 billion yen helped by the new Legacy's launch in Japan.

According to Reuters, Takagi conceded, however, that demand for the remodelled R2 minicar in Japan fell short of expectations, while US vehicle sales also suffered as Subaru pulled back its spending on discounts and other incentives to an average $900 per vehicle from $2,000 in the previous three-month period.

"It seems Japanese minivehicle buyers are going for the boxy, roomier cars," he said, according to the report.

Subaru had been counting on the new Legacy and R2 models to fuel a strong sales expansion this year, but it lowered its global volume target for the second time in three months.

It now expects to sell 588,000 vehicles worldwide this business year, 23,000 fewer than its projection in August and down from the 626,000 vehicles foreseen in May.

That pushed its revenue forecast down by 20 billion yen, but Subaru said it would make up for that at the profit level through further cost cuts.

A stronger dollar assumption at 108 yen for the year instead of 105 yen would also help, while Subaru will be looking for a bigger profit boost from the Legacy, whose U.S. sales began in June, to kick in from the current six-month period.

First-half contributions from U.S. operations come from sales and profits made between January and June.

Subaru's sales in the United States, where it has 1.1% of the market, fell 3.0% in the first 10 months of 2004 compared with the same period last year, although the trend has reversed to turn up by double digits in September and October.