TOKYO, Nov. 6, 2009 (Kyodo News International) -- Despite rosier outlooks and trimmed losses for the first half of the business year, clouds of uncertainty hover over the fragile recovery in Japan's corporate sector, which has been driven mainly by emerging markets and fixed-term government incentives.

Both company executives and analysts warned that the rest of the year is likely to be rocky as government stimulus measures taper off and as a stronger yen continues to take a toll on profits made overseas.

''Overall capital spending continues to be severe and final consumption is also sluggish,'' Takashi Miyoshi, executive vice president of Hitachi Ltd. (NYSE:HIT) , said. ''Tough conditions are still continuing.''

In terms of the balance sheet, most Japanese auto and electronics giants fared much better during the April to September period compared with last autumn as cost-cutting efforts progressed at a much faster pace than expected.

Seven of Japan's top eight electronics companies including Toshiba Corp. (OOTC:TOSYY) booked net losses in the first half of fiscal 2009 through next March. But the combined net losses of the eight companies totaled over 340 billion yen during the period in a drastic improvement from around 2.4 trillion yen in losses incurred between last October and March.

Panasonic Corp. boosted its operating profit projection to 120 billion yen from an earlier 75 billion yen as consumer demand in Japan and China rebounded on the back of government stimulus measures.

''We saw marked growth in sales of televisions and refrigerators since the introduction of the eco-point system,'' Panasonic President Fumio Otsubo said in reference to a government program to promote sales of energy-saving home appliances.

In the auto industry, seven out of eight major carmakers including Nissan Motor Co. and Honda Motor Co. boosted their annual earnings outlook, helped by roaring demand in emerging countries.

''There is the possibility of much further growth in China and India,'' Osamu Suzuki, chairman and president of Suzuki Motor Corp., said. ''Developments in Asia will be the key for us.''

Only Toyota Motor Corp. and Mazda Motor Corp., despite raising their outlook, anticipate conservative operating loss figures as many saw sales improve even in struggling markets like Europe and the United States on the back of the cash-for-clunkers program.

But for a country largely dependent on exports, the outlook remains grim as the yen continues to appreciate against key currencies, eroding profits Japanese companies make abroad.

''If the stronger yen continues, we need to consider shifting (our manufacturing bases) abroad,'' Koichi Kondo, Honda's executive vice president, said.

Both Honda and Nissan expect the U.S. dollar to trade on average at the 85 yen level during the October-March period, up around 10 yen from a year earlier.

''Since the spillover effects of the auto industry are wide-ranging, the impact on the Japanese economy will be huge,'' Tatsuya Mizuno, a former auto analyst at Fitch Ratings in Tokyo and current representative of consulting firm Mizuno Credit Advisory, said.

''If the shift abroad accelerates further, it would hurt Japan's manufacturing strength heavily,'' he added.

Toyota, the world's biggest automaker, booked a surprise profit in the July to September period and trimmed its annual loss forecasts for the second time on cost cuts and brisk sales of its Prius hybrid and other fuel-efficient models.

But analysts said its clout is weakening as it struggles to find new sources of growth in an industry that is unlikely to expand at the same pace as in past decades even with a turnaround in the global economy.

''Toyota is recovering, but its overpowering strength is nowhere to be seen,'' Mizuno said, citing also its disadvantage in emerging markets where Nissan and Honda are leading.

And company officials admit they fear a backlash against demand lifted by temporary government stimulus measures that are not backed up by a genuine recovery in market and economic conditions.

''There is no end to causes for concern such as falling equities, deflation and the stronger yen,'' Fumio Muraoka, Toshiba's corporate senior executive vice president, said.