HONG KONG (MarketWatch) -- Toyota Motor Corp. said Friday losses for the business year ending next month will be larger than it had earlier forecast as sales weaken in Japan and overseas markets, and an appreciating yen trims the value of repatriated foreign earnings.

Toyota said its operating loss will likely widen to 450 billion yen ($4.95 billion) for the fiscal year ending March 31. In December, the Nagoya-based automaker forecast a 150 billion yen operating loss.

The operating loss is Toyota's first since the end of World War II.

"Toyota will be facing a tough time for the next few quarters," said UBS analyst Tatsuo Yoshida in Tokyo.

He said Toyota will need to take bold steps to reduce its capital expenditure and research and development costs if it wants to return to profitability in a year when industry-wide global auto sales are expected to contract 10%.

UBS said the wider loss was related to a 220,000 unit cut in Toyota's global annual output estimates which knocked earnings by 210 billion yen and valuation losses by 90 billion yen on interest rate swaps.

Toyota said its outlook was for a net loss of 350 billion yen in the March-ended fiscal year, revising its earlier view for a 50 billion yen net profit.

Net losses in the fiscal third-quarter totaled 164.7 billion yen ($1.81 billion), compared to a 458.6 billion yen net profit a year earlier. Net revenues decreased 28.4% to 4.8 trillion yen during the quarter.

"We are in a difficult economic climate facing uncertainties, including fluctuations in energy and raw material prices and foreign exchange rates," Toyota said in a statement.

On a regional basis, quarterly net revenues fell the most in North America, declining 27.3% to 5.292 trillion yen, followed by an 18.6% decline in Europe and a 9.6% fall in Japan. In the rest of Asia net revenues were down 0.3% to 2.31 trillion yen.

"The automotive industry . . . is experiencing a rapid contraction of markets in developed countries and a slowdown of market growth in resource-rich counties and emerging markets once expected to grow," Toyota said in the statement.

Ahead of the earnings announcement, Moody's downgraded Toyota's credit rating, saying the length and severity of the global downturn will mean a slow road to profit recovery for the Japanese automaker.

Moody's cut the rating to Aa1 from Aaa and said it had a negative outlook on the car and truck maker.

"A number of factors in Toyota's operating environment -- the global economic slowdown, yen appreciation, and volatility in the prices of raw materials -- continue to evolve and thus, in Moody's view, the company is unlikely to meaningfully improve its operating performance," in the financial year ending March 2010, Moody's said in a statement.

Moody's said Toyota was likely to maintain its dominant position (having overtaken General Motors Corp. GM, -2.37% in vehicle output last year), but would see volume and revenue decline.

Shares of Toyota TM, -1.29% (7203) closed 1.6% higher at 2,255. The benchmark Nikkei index was up 1.6% at 8,076.62.

Toyota's share of the U.S. auto market rose to 16.7% in 2008, up from 16.2% in the preceding year, as vehicle sales totaled 2.2 million units, down 400,000 units on year.

Toyota's share of the Japanese auto market was unchanged at 42% in 2008 even as unit sales slipped to 2.2 million units, down from 2.3 million units a year earlier.

Moody's said Toyota had about 5 trillion yen ($55 billion) in investment securities that could be sold at short notice to raise cash if needed.

"Toyota has an extremely high degree of financial flexibility, meaning it should be able to withstand any difficulties the industry may experience," Moody's said.

Toyota said last year's 5% contraction in its global output was the first time in a decade its output had slipped.