The Bank of Japan on Thursday downgraded its assessment of the nation's economy for the seventh consecutive month.

"Japan's economy is deteriorating broadly, as private consumption is weakening in addition to a decline in exports and business fixed investment," the central bank said in its economic and financial report for December.

In its previous report, the BOJ said personal consumption was gradually deteriorating due to sluggish industrial production activities that were dragging down employment and income.

In its latest report, it said, "The weakness in household income is becoming noticeable amid the decrease in the hours worked and the rise in unemployment, and consumer confidence is becoming cautious."

On the subject of exports, it said inventory adjustments in information technology goods showed steady progress, supporting the view that these adjustments will mostly be completed by the spring.

It warned against excessive optimism, however, saying final demand remains stagnant.

Citing continuing uncertainty over the U.S. economy in the wake of the Sept. 11 suicide terrorist attacks on New York and Washington, the central bank said domestic exports and production will remain under downward pressure.

Regarding business fixed investment, it said, "Credit demand in the private sector is declining faster mainly because firms are decreasing their business fixed investment while continuously reducing their jobs."

It also noted the tendency of private banks to be more cautious in lending to high-risk firms.

"Funding costs for firms continue to be at extremely low levels on the whole, although market funding costs for some firms are rising," it said.