Canon, often hailed as a success story in Japan's recovery from a recession a decade ago, becomes the latest company to cut its forecasts as the yen soars to a 13-year high against the dollar.

Canon, a maker of digital cameras and office equipment, said it now expected net profit of 375 billion yen (S$6.05 billion) for the year ending December 31.

It had previously predicted net profit of 500 billion yen. The new estimate would mark a fall of 23.2 per cent from net profit in the previous year.

The US-bred economic slump along with the rapid rise of the yen 'are having a large negative impact on our office and consumer-targeted businesses and has shrunk our market,' Masahiro Osawa, Canon's managing director for finance and accounting, told reporters.

He said that high raw material costs were also causing pain for the economy.

Economic conditions and business confidence were worse than the company's expectations and were expected to remain 'severe for this fiscal year as well as next year,' Mr Osawa said.

For the nine months to September, Canon said its net profit dropped to 297.5 billion yen, down 17.5 per cent from 360.5 billion yen posted in the same period last year, a company statement said.

Operating profit declined 18.3 per cent to 460.2 billion yen from a year earlier when the company posted more than 10 percent growth.

For 2008, Canon expects sales of its office products to decline by 7.6 per cent. Sales of cameras were seen declining 2.5 per cent, but the fall was offset by strong demand for digital cameras in emerging economies.

Canon said that it was now expecting the dollar to be about 100 yen, a 13 percent appreciation for the Japanese currency since last year. The dollar was trading in the 94-yen level on Monday.

The company is also facing stiff competition overseas after rival Ricoh Co. agreed to buy US firm Ikon Office Solutions for US$1.6 billion.

Canon shares closed down 290 yen or 10.89 to 2,375 prior to the earnings announcement. -- AFP