The camera and office equipment maker said earnings slipped to 224.6 billion yen (USD 2.5 billion) in 2012, compared to 248.6 billion yen a year earlier.

Unlike many Japanese firms, Canon reports its financial results on a calendar-year basis.

The annual results missed an earlier forecast of a 234 billion yen net profit announced in October, a figure that had already been slashed from the previous target of 290 billion yen.

Net sales last year were down 2.2 per cent to 3.48 trillion yen, while operating profit fell 14.3 per cent to 323.9 billion yen.

The decline was due to "the economic slowdown mainly in Europe and the high valuation of the yen against the euro, combined with the cooling-off of demand in China during the latter half of the year", it said.

Canon did not make specific reference to Tokyo's territorial dispute with Beijing over a chain of East China Sea islands.

But Japanese firms have suffered in the wake of the long-running diplomatic dispute, which erupted again in September after Tokyo nationalised some of the archipelago.

The move set off huge demonstrations across China and sparked a consumer boycott of Japanese products, which have weighed on Japan Inc's results.

The yen's strength also hurt Japanese firms by making their products more expensive overseas. The unit has weakened in recent months as a new conservative government swept to power.

Canon said it expects a moderate recovery this year, forecasting a net profit of 255 billion yen and 410 billion yen in operating profit on sales of 3.81 trillion yen for the