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A stronger yen and a slowdown in US car sales is dragging on the outlook for Honda.

Japan’s third-largest carmaker forecast a 14 per cent year-on-year decline in net profit to ¥530bn ($4.8bn) for the new fiscal year ending in March 2018. That came in below analyst forecasts for a profit of ¥616bn.

The weak forecast came as Honda projected a decline in car sales in North America and Europe, and a 9.4 per cent rise in research and development costs as carmakers ramp up their spending in autonomous driving and fuel-saving technologies. The company assumed an exchange rate of ¥105 against the US dollar compared to ¥108 in the previous fiscal year.

The declining profits will be a reversal from the last 12 months when Honda enjoyed a recovery thanks to a strong product line-up in the US and a reduction in costs related to the global recall of vehicles fitted with faulty airbags made by Takata.

During the fiscal fourth quarter, Honda returned to a profit of ¥95.9bn from a loss of ¥93.4bn a year earlier, while revenue increased 2.9 per cent to ¥3.7tn.

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