Honda Motor Co. predicted a drop in earnings for the fiscal year that began April 1 because of the weakness in the U.S. auto market, its biggest source of profit, and unfavorable currency rates.

Honda, Japan's second-largest automaker, reported a record $6 billion profit for the year that ended March 31, but the effects of the deterioration in demand in North America took a toll on its January-March, or fourth-quarter, results.

Its fourth-quarter profit slid 86 percent to $254 million after Honda also set aside an $800 million provision to cover possible tax debts in China and Japan.

Operating income, which does not reflect the tax charge, was down 33 percent at $1.7 billion on sales of $30.5 billion.

"This decrease in operating income was primarily due to the negative impact of sales incentives in North America, increased raw material costs, depreciation expenses ... and currency effects caused by the appreciation of the Japanese yen," Honda said in a statement. Those factors offset a rise in vehicle sales, cost-reduction efforts and lower research and development spending.

Honda forecast a 30 percent fall in operating profit for the current fiscal year, "which is in line with our expectations," investment firm Nikko Citigroup said in a research note.

"Despite the substantial expected decline in earnings in fiscal year to March 2009, we anticipate renewed growth in fiscal year 2010 on expanding earnings in Asia and other regions and the effects of production reforms," it said.

Honda forecast an 18 percent decline in net income this year. Although it produces most of the vehicles it sells in North America in the region, the dollar's weakness cuts the value of its U.S. earnings.

A dollar fetched 105 yen, on average, in the three months to March 31, down from 119 a year earlier. According to Deutsche Bank, each one-yen gain against the dollar cuts Honda's operating profit by $180 million.

Toyota Motor Corp. is scheduled to report annual results on May 8 and Nissan Motor Co. on May 13.