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Exports fell 2.0% in June from a year earlier, compared with a 1.0% increase expected by economists in a Reuters poll, data from the Ministry of Finance showed on Thursday.
That followed a 2.7% decline in the prior month, which was the first annual drop in 15 months.
Sluggish exports, a weak spot in the world's third largest economy, have been a concern for policymakers who hoped that a recovery in external demand would help offset the pain from the April sales tax hike to 8% from 5%.
Analysts say weak exports alone may not trigger the Bank of Japan to act, but if domestic demand falters, it could raise expectations for additional monetary easing, which have subsided in the face of the BOJ's confidence it will meet the inflation goal.
"This raises more concern about how the economy will do after the sales tax hike and makes the government less likely to proceed with the next tax hike scheduled for next year," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.
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"Weak exports alone will not prompt the Bank of Japan to ease policy, but if consumer spending also weakened, then expectations for a policy change would increase."
Exports to the United States, a key market, fell 2.2% in June from a year ago as more Japanese companies produce goods in other countries, such as Mexico, for U.S. consumers. Car shipments to the United States fell 6.8%, weighing on US-bound exports.
Exports to China, another important market for Japan, rose 1.5% year-on-year in June, but exports to Asia, which accounts for more than half of Japan's total exports, fell 3.8% in June from a year earlier, hit by sluggish shipments of electronics parts.
Some respite for policymakers came in the form of July's Markit/JMMA flash Japan Manufacturing Purchasing Managers Index (PMI) which saw the new export orders index rising to 51.6 in July from a final 49.5 in June, a return to growth for the first time in four months. (A level above 50 indicates expansion.)
Japan's imports grew 8.4% in the year to June, matching the median estimate, due to hefty fuel imports, bringing the trade balance to a deficit of 822.2 billion yen ($8.10 billion), the MOF data showed, marking two full years of trade shortfalls, the longest run on record.
On a half-year basis, Japan logged a record trade deficit of 7.5984 trillion yen in the first half of 2014, the data showed.
BOJ Governor Haruhiko Kuroda said last week exports would increase eventually as overseas markets, mainly in advanced economies, recover, while Finance Minister Taro Aso has also blamed weakness in emerging market economies for Japan's lacklustre export performance.Policymakers and analysts also cite the ongoing shift of Japanese production abroad.
The BOJ's aggressive monetary stimulus helped weaken the yen by roughly 20% in 2013, boosting exporters' profits and share prices. However, the yen has moved sideways this year versus the dollar, limiting gains in export proceeds.
More worryingly, the weak yen has failed to shore up export volumes, which fell for a third straight year in 2013.Export volumes dropped 1.7% in June from a year ago, down for a second straight month, the MOF data showed.
The government raised the sales tax to 8% from 5% in April, but it could delay a second tax hike to 10% scheduled for October next year if the economic outlook weakens.
