The race for profits among Japan’s automakers is likely to show Toyota well ahead in the first quarter, with expected double digit growth on runaway sales, while its rivals struggle to offset damage from a stronger yen, a Reuters report said.

A 10-yen fall in the dollar during the April-June quarter would deal a hefty blow to all of Japan’s top five carmakers, but analysts told the news agency fundamentals were solid for most thanks to healthy sales in the most profitable US market, where Asian brands are snatching sales from Detroit’s Big Three.

The popularity of Japanese brands in the United States is helping to make up for a lacklustre home market, where a gradual upturn in the economy has yet to translate into more spending on cars, Reuters noted.

The yen’s rise reportedly is also less of a worry further out, since the currency is trading at much more favourable rates than most car makers’ assumption that the dollar and euro would average 105 yen and 125 yen, respectively, during the year to next March.

“The stronger yen will have a big impact in the quarter, but investors have already braced themselves for a dollar rate of 105 yen for this year, so there’s little worry ahead,” Deutsche Securities analyst Tatsuo Yoshida told Reuters.

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The one exception is Mitsubishi Motors Corp., whose brand image has been shot since its practice of hiding vehicle defects resurfaced, adding to its financial woes, the report noted, adding that Mitsubishi’s sales have tanked beyond expectations in Japan in recent months, making its plan to turn the company around over the next three years seem overly optimistic.

According to the report, Japan’s only loss-making carmaker has forecast an operating loss of 120 billion yen ($US1 billion) this year, but said losses could swell by 30 billion yen in the likely event that domestic sales fall 80,000 units short of initial projections.

At the other end of the spectrum, Toyota, which became the first Japanese firm to earn a net 1 trillion yen last year, is set to score a jump in profits, Reuters said.

“Earnings look set to notch up on higher than expected US auto sales volumes, lower than expected incentive outlays” and a dollar rate above its assumption, UBS analyst Takaki Nakanishi, who expects a 27% jump in Toyota’s quarterly operating profit, told the news agency.

Toyota reportedly also will benefit from better sales at minivehicle and truck units Daihatsu and Hino, which have been on the receiving end of the exodus of customers from MMC and its scandal-plagued truck affiliate.

Reuters noted that Japan’s top automaker last week raised its group-wide global sales projections for 2004 by 4%.

Toyota doesn’t provide group-based profit forecasts, but analysts reportedly expect another bumper year for the world’s second-biggest auto maker as it plans to provide a steady flow of new products in every region, including the addition of more hybrid-powered vehicles in the United States.

Profit growth in the April-June quarter will also get tailwind from easy comparisons from the year before, when Toyota had to spend heavily to switch production models at its North American plants, Reuters noted.

Nissan Motor, Japan’s second-ranked carmaker, reportedly is also likely to report a small profit rise thanks to a better model mix in the United States and a fall in purchasing costs.

Its US sales are up by double-digits after a string of products launched from the new Canton, Mississippi, plant such as the Titan pickup and Infiniti QX56 SUV, although slightly short of the company’s target so far, the report added.

Analysts told Reuters the key going forward would be Nissan’s ability to expand sales without sweetening incentives too much.

Honda, which kicks off the earnings season on Wednesday, reportedly is expected to fare worse, with most analysts forecasting a fall in operating profit as it sought to adjust US inventories, dragging down shipments to its main market.

Spending on sales incentives and recall costs to fix defective transmissions and fuel pump systems also pressured profits during the quarter, Reuters said.

But Japan’s third-biggest automaker would offset some of that with a pickup in domestic sales after a slow 2003, the news agency noted. Analysts told Reuters that brisk sales of all-terrain vehicles (ATVs) in North America and motorcycles in Asia, as well as an improvement in product mix globally would help the picture further out.

For fifth-ranked Mazda Motor Corp., year-on-year comparisons will not be available since it will report quarterly earnings for the first time, the report noted.

But analysts reportedly said Mazda was on track to meet its conservative full-year forecast of flat operating profit, backed by a firm rise in US sales and continued strength in Europe.

Nissan will report on Thursday, Mazda on Friday, Toyota on August 3 and Mitsubishi on August 4, Reuters said.