Published: Wednesday, 22 Jul 2009 | 9:25 PM ET

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Japan's annual export slide slowed in June from May, trade data showed on Thursday, suggesting that stimulus spending around the world is propping up global demand.

Reed Saxon / AP

Annual declines narrowed for Japan's exports to China, one of the world's most vibrant economies, as well as to the United States and Europe, boding well for Japanese auto and electric machinery firms.

Still, some economists are lukewarm on the outlook, because once stimulus measures fade, final demand won't be strong enough to pick up the slack.

"The key for the outlook is whether U.S.  onsumption will pick up, and when. Given the dire job conditions there, we can't expect it to happen soon," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"That might cap Chinese growth, and therefore  Japanese exports."

The 35.7 percent annual fall in the value of  xports in June roughly matched economists' median forecast for a 35.1 percent drop and was smaller than a 40.9 percent decline in May, the Ministry of Finance data showed.

On a seasonally adjusted basis, exports rose 1.1 percent in June from May, for the first gain in two months.

Slowing declines in shipments of steel,  semiconductors, car parts andelectronic parts to Asia were the main reason Japan's overall exports fell at a slower annual pace in June, a MOF official told reporters at a briefing.

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China-bound exports fell 23.7 percent in June from the previous year, smaller than a 29.7 percent drop in May, the trade balance data showed.

Exports to the United States fell 37.6 percent  hile those to the European Union were down 41.4 percent, both narrowing their pace of annual declines.

Auto exports to the United States fell at a slower annual rate in June, in another sign that exports are gradually recovering, the MOF official said.

The yen slipped to 93.69 yen per dollar after the data from about 93.55, while Tokyo stocks were flat.

Japan's economy is gradually emerging from its worst postwar recession with exports and output bouncing back.

With Japan's production still down about 30 percent from a year ago despite a recent recovery, however, many manufacturers are still considered to be operating below the break-even point.

Unless global demand recovers strongly, Japanese exporters may need to cut more jobs and production facilities, some analysts say.

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"Exports are still growing, but it's not like external demand is improving sharply either," said Junko Nishioka, chief Japan economist at RBS Securities.

"Overseas inventories at Japanese firms have declined while demand is slowly recovering, so I expect Japan's exports to continue to grow, but I doubt we'll see strong growth like in 2005-2006."

Many economists warn that any economic recovery will be modest as companies have only just started to pass on the pain to households through cuts in jobs and wages.

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