TOKYO: Canon expects a 26.6 per cent rise in operating profit this year as it cuts costs and gets a boost to revenues from a weakening yen, although the rise fell short of analysts’ expectations.

Demand for compact cameras is shrinking as consumers shift to smartphones, while stretched budgets among customers in Europe have eroded sales of its office printers.

The camera and printer maker, considered a leader in profitability in corporate Japan with its aggressive cost-cutting, is angling for a foothold in the growing market for mirrorless cameras with interchangeable lenses, where it faces stiff competition from Sony Corporation, Olympus Corporation and Nikon Corporation.

Canon’s operating profit for the three months ended on Dec.31 fell 17.9 per cent to 77.7 billion yen ($857.1 million), below the average estimate of 100.9 billion yen by seven analysts surveyed by Thomson Reuters.

The company, which derives 80 per cent of its revenue from overseas, was badly hit by the firmness of the Japanese currency last year, and said on Wednesday that economic recovery in India and China, as well as aggressive economic stimulus policies in Japan, were likely to support the company’s earnings.

The company set its exchange rate assumptions for the business year ending in December at 85 yen to the dollar and 115 yen to the euro, weaker than last year’s average of 79.96 yen per dollar and 102.8 yen per euro.

As one of the first blue-chip Japanese companies to report quarterly results, the camera and office equipment company’s results are often seen as a barometer for tech sector earnings.

The company forecast a full-year operating profit of 410 billion yen for the current year to December, compared with the average expectation of a 443.3 billion yen profit from 21 analysts, according to Thomson Reuters Starmine.

“Both its full-year earnings and forecast are below market consensus, so the results were seen negative,” said Makoto Kikuchi, the chief executive of Myojo Asset Management.

“Investors have bought Canon overly high expectations that a weaker yen will lift its bottom line, but such excitement should recede,” he said.   Its shares have fallen about 1 per cent since the start of last year, underperforming the Nikkei average’s gain of 31 per cent. The shares slipped to a three-year low in July when Canon cut its outlook and took a further knock on fears of shrinking demand in China.

The stock ended nearly 3 per cent higher on Wednesday before the earnings announcement.

Xerox, with which Canon competes for a share of the global printer market, overshot expectations with its quarterly earnings and maintained its full-year targets as it restructures parts of its business and commits to further cost cuts.

Nikon is due to report its results on Feb.6, with Sony following the next day.

Meanwhile, Tokyo stocks jumped 2.28 percent on Wednesday to close at their highest level in nearly three years thanks to a weaker yen and receding concerns over Europe’s debt crisis.