TOKYO (AFX-ASIA) - The Bank of Japan downgraded its economic assessment, saying in its September report that adjustments in economic activity have become more severe, with a deterioration in the corporate sector beginning to have a spill-over impact on the household sector. This is the fourth consecutive month that the central bank has downgraded its assessment of the economy. The central bank also pointed to the gloomier outlook, citing the possible fallout of the terrorist attacks on the already fragile economic activity in Japan. "Adjustments in economic activity are becoming more severe as the substantial decline in production, starting from a fall in exports, is beginning to have a negative influence on employment and income conditions," the BoJ said in its report. In its August report, the central bank had said that "adjustments in economic activity are intensifying further, reflecting a substantial decline in exports and production." Based on the new analysis, the Bank of Japan Monday decided to ease monetary policy, boosting the target for outstanding current account balances to beyond 6.00 trln yen and cutting the official discount rate to 0.10 pct. The central bank emphasized a broadening deterioration of economic activity in the latest report. "Business fixed investment is decreasing notably," the bank said, downgrading from the assessment in the August report that capital spending was decreasing. The BoJ also noted that net exports are now falling due "not only to a slowdown in overseas economies but also to sluggish demand for IT-related goods. "Reflecting such developments in final demand and the strong excess of inventories of electronics parts and materials, industrial production continues to decline considerably," it said. As a result, corporate profits and business sentiment "are also worsening particularly in the manufacturing sector. "Affected by these developments, household income is weakening gradually," the bank added. The central bank said that although consumer spending remained "flat on the whole," it is expected to "become weak gradually, while employment and income conditions continue to deteriorate." The central bank also warned of sustained sluggish economic activity ahead, citing a downside risk in net exports and industrial output, as well as in corporate profits and capital spending. "Overall, adjustments, starting from the decrease in exports, are expected to have a negative influence on domestic demand gradually and this in turn will possibly prolong the ongoing adjustments," the bank said. "Moreover, while the economy continues to be in a fragile state, attention should be paid to the growing risk of a negative impact on the economy induced by developments in foreign and domestic capital markets via corporate and household confidence." The BoJ also noted that business fixed asset investment and industrial production are projected to "follow a downtrend" as inventory adjustments in the IT sector and the base material sector will "continue for the time being." The central bank said deflationary pressure remains intact, adding that "overall, prices are expected to follow a gradual declining trend for the time being. "Moreover, given the high degree of uncertainty regarding future economic developments, the possibility that weak demand will intensify downward pressure on prices warrants careful monitoring." The bank also noted receding expectations that the US economy will emerge as a growth engine in the near term. "Uncertainty regarding the outlook for the recovery of overseas economies, particulary the US, is growing further, while the global economy continues to decelerate concurrently." The bank said that therefore, "it is necessary to carefully monitor the effects of the terrorist attacks in the US on global financial markets and economic activity."