The world's largest automaker, Toyota, has raised its full-year profit outlook and announced a 1 trillion yen ($6.3 billion) share buyback, driven by a weaker yen and strong sales of hybrid vehicles.

For the quarter ending June 30, the Japanese carmaker reported an 8.8% drop in operating profit to 1.1 trillion yen, impacted by rising costs and supply chain disruptions from the Middle East conflict affecting global automakers.

This marks the fifth consecutive year-on-year decline in quarterly operating profit for Toyota.

However, the company has raised its operating profit forecast for the current fiscal year ending March 2027 to 3.4 trillion yen, up 400 billion yen from its previous estimate, citing benefits from a weaker yen and the establishment of alternative logistics routes to the Middle East.

Toyota now expects the war-related losses from higher parts costs and lost sales to total 510 billion yen ($3.2 billion), lower than the 670 billion yen estimate made in May.

This follows similar guidance upgrades from General Motors and Ford, which also benefited from sales of high-margin gasoline and hybrid vehicles in the U.S. market.

Toyota noted that it is too early to assess the full impact of last week's earthquake in Japan, which affected some suppliers and automakers in the Kyushu region.

The company's earnings assumptions are based on a dollar-yen exchange rate of 160. Currently, the dollar is trading around 157 yen, following multiple rounds of currency market intervention by both the U.S. and Japan.

Sales of high-margin hybrid vehicles in the U.S. market have also supported Toyota's profitability.

Toyota stated that its North American operations returned to profitability during the reporting period, driven by price adjustments, favorable currency moves, and lower U.S. tariffs.

For the first time, Toyota expects annual hybrid vehicle sales to exceed 5 million units this year.

Despite the improved outlook, Toyota's first-half sales declined 2.9% compared to the same period in 2025.

Toyota's shares have fallen 14% year-to-date, declining more than a quarter since hitting a peak in March. The stock closed 1.5% lower on Tuesday.

Macquarie auto analyst James Hong said the market reaction likely reflects that despite strong earnings, investors had expected a larger share buyback program.

"Toyota's balance sheet is strong enough to handle a buyback exceeding 1 trillion yen. With its price-to-book ratio now below 1, the market was anticipating a higher repurchase amount," Hong noted. A price-to-book ratio below 1 indicates the market values the company at less than its net asset value.

As the stock price declined, Toyota briefly lost its position as Japan's most valuable company, being overtaken first by AI-driven SoftBank and Kioxia, then by the interest rate-sensitive Mitsubishi UFJ Financial Group, before reclaiming the top spot.