By Kiyoshi Takenaka

Canon's annual forecast is closely watched as it is the first earnings indicator from a major Japanese exporter for the year ahead. While most Japanese companies close their books on March 31, Canon's business year ends on December 31.

The company, which leads Sony Corp and Nikon Corp in the digital camera market, did not give a dividend forecast for 2009.

It said it would aim to cut about 70 billion yen in costs in 2009 as it copes with a crisis that has pushed many of its rival electronics makers into the red, forcing them to scale back production and slash jobs.

"Earnings like this can be viewed as inevitable considering the irregular condition of the economy," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"The focus point will be how much the company can advance restructuring of their businesses. If they can show that to the market, its stock price could go back up."

Canon, which makes EOS and IXY brand digital cameras, expects its operating profit to fall 68 percent to 160 billion yen ($1.80 billion) in 2009, after posting its first annual operating profit decline in nine years in 2008.

The 2009 forecast compares with the consensus 309.8 billion yen profit in a poll of 16 analysts by Reuters Estimates.

Canon's profitability has been hit by sliding consumer demand, steep price falls and the strength of the yen, which makes Japanese products less price-competitive overseas and eats into revenues when converted into the Japanese currency.

"A substantial recovery in the economy is unlikely in 2009. Our operating environment will be even harder this year than it was last year," Canon Managing Director Masahiro Osawa told a news conference.

For October-December, operating profit totaled 35.8 billion yen, down from 193.58 billion yen a year earlier. Net profit fell 91 percent to 11.6 billion yen.

Canon competes with Xerox Corp, Ricoh Co Ltd and Konica Minolta Holdings in copiers and printers. Its office equipment operation is under pressure as corporate clients rein in spending on information technology.

Ricoh bought U.S. office equipment distributor Ikon Office Solutions for $1.6 billion last year, delivering a heavy blow to Canon in the key U.S. market.

Before the acquisition, Canon machines accounted for 60 percent of the products Ikon handled. But Ricoh has said it aims to replace Canon products with its own printers and copiers in a few years.

Shares in Canon closed up 0.4 percent at 2,590 yen ahead of the announcement, compared with a 0.9 percent rise in the Tokyo market's electrical machinery index.

(Additional reporting by Aiko Hayashi; Editing by Hugh Lawson)