The Bank of Japan on Monday downgraded its assessment of the economy for the fifth straight month, saying the Sept. 11 attacks in the U.S. have increased uncertainty.
"Adjustments in economic activity are becoming more severe, as the substantial decline in production has a negative influence on employment and income conditions," the central bank said in a monthly report on economic and financial developments.
"In addition, the terrorist attacks in the U.S. have further heightened uncertainty in Japan's economy," it said.
In its report last month, the BOJ said the substantial decline in production is "beginning to have a negative influence" and did not refer to the impact of the terror attacks.
In the latest report, The BOJ said business-fixed investment is decreasing and export conditions continue to deteriorate.
Industrial production is also declining considerably and private consumption remains almost flat, although indicators that have been somewhat weak have been improving recently, the BOJ said.
"Moreover, while perceptions are becoming widespread that a further deceleration in overseas economies is inevitable due to the terrorist attacks in the U.S., precautions against the business outlook are intensifying among Japanese exporting firms," the report says.
The central bank painted a gloomy picture for the economic outlook because falling exports will probably have an adverse effect.
"Overall, adjustments in economic activity . . . will surely affect domestic demand gradually," the report says. "At the same time, concern that another substantial decline in exports will exert downward pressure on the economy is growing."
It also warned the prolonged downturn in U.S. private consumption would induce another round of adjustments in Japan's economy, starting from the decline in exports such as of consumer goods.