It’s the latest piece of bad news for the company. Despite capturing the global sales lead from General Motors Corp. in 2008, Toyota’s year was marked by collapsing sales in critical markets, fallout from questionable investments in truck manufacturing in the U.S. and a sky-high Japanese yen that made formerly lucrative business lines money losers.

Just over two weeks ago, the company demoted its top executive, Katsuaki Watanabe, handing control to Akio Toyoda, grandson of the company’s founder. And this morning, rating agency Moody’s cited a “rapid decline in sales in developed markets” and volatile exchange rates in a decision to downgrade Toyota’s debt, raising the cost of borrowing for the automaker. Standard & Poors’s also gave Toyota a downgrade.

Toyota Executive Vice President Mitsuo Kinoshita said today that the company would be “reviewing our entire business to reduce costs across the board.” The company has established an “emergency profit improvement committee” to examine its operations for ways to raise the bottom line.

Among a series of moves designed to slash costs by 10%, Toyota has reduced global production and indefinitely shelved plans to open a plant in Mississippi to build the Prius hybrid in the U.S. The factory, already under construction, will be finished, but Toyota won’t install the tooling necessary for vehicle production.

In addition, Kinoshita said Toyota would develop “a new product lineup that responds to the customers’ requirements in each region.” That plan, the company said, would feature an increased focus on hybrid vehicles and small cars.

Regardless of the vehicles the company builds, Toyota, like other carmakers, must find a way to turn around sales. The company’s U.S. sales declined 15.4% in 2008; in January, U.S. sales were down 32% over the previous year and even the low-cost Yaris subcompact declined 42%. In the third quarter, Toyota lost $2.7 billion in North America.

Worldwide revenue for Toyota in the quarter was down 28%, to about $52 billion.

In December, the carmaker surprised analysts by saying it expected to report an annual operating loss of about $1.7 billion, a huge turnaround from fiscal 2007, when Toyota posted a $28-billion operating profit. In December, the company said it still expected to turn a small net profit for fiscal 2008. Today it said it expected its operating loss to total nearly $5 billion.

The last time Toyota posted a loss on operations was in 1937, when the company’s first vehicle, the Model AA, was in its second year. Seven decades later, Toyota is a global industrial monster on the largest scale, with over 300,000 employees, two major brands and stakes in everything from biotech to battery development.

Long admired by industry for its ultra-efficient manufacturing techniques, for over two decades Toyota has been held up to American carmakers as the example of how the auto business should work.

But the current economic downturn is proving so severe that even what has been called the world’s best car company is beginning to succumb. Its financial woes are echoed by other Japanese automakers. This week Honda and Nissan issued profit warnings, and Mitsubishi and Mazda said they would likely post net losses for 2008.

Unlike the Big Three U.S. automakers, however, Toyota has large cash reserves and a profitable dealer network, which explains why its debt is still highly ratedwhereas GM, Ford and Chrysler have been below junk status for years.

Toyota’s U.S.-traded shares rose 57 cents to $69.38 in trading today.