TOKYO (AFX-ASIA) - The Bank of Japan left its overall assessment unchanged in its latest economic report for February, saying the economy "continues to deteriorate", though the pace of decline will moderate. It was the second month in a row that the bank left its assessment unchanged. "Japan's economy will continue to deteriorate, but the pace is expected to moderate gradually with the downward pressure from exports and inventories abating," the bank said. Net exports are falling at a "slower pace" as the decline in exports moderates, while inventory adjustments are progressing. The bank removed the reference in last month's assessment of strongly excessive inventories. The global inventory adjustment in IT-related goods "is coming to an end", the bank said, adding "there seem to be signs that exports and production of the East Asian economies have stopped declining". "Exports are expected to stop decreasing and to turn up toward the middle of this year," as a result of improved conditions and the depreciation of the yen. "However, exports will recover only modestly, while the recovery in overseas economies is weak and final demand for IT-related goods worldwide remains stagnant for the time being," it added. The BoJ said Japanese output continues to decline but at a slower pace, as a result of the improvement in exports and progress in inventory adjustments. "The rate of decline in industrial production is contracting," the bank said. "However, firms maintain their stance on reducing personnel expenses under strong excessiveness in employment. "Hence, the severity of employment and income conditions of households is rather intensifying, with unemployment continuing to rise and winter bonuses having decreased distinctly." Business fixed investment is expected to continue its downtrend due to the decline in corporate profits, with private consumption likely to be weak as employment and income conditions worsen. "Housing investment remains sluggish and public investment is on a downward trend," the bank added. Overall prices are expected to follow a "gradual declining trend for the time being", it said. "As the economy continues to deteriorate, the balance between supply and demand in the domestic market will keep exerting downward pressure on prices," it said, despite the supportive effect of the recent decline in the yen. "Moreover, given the high degree of uncertainty regarding future economic developments, the possibility that weak demand will further intensify downward pressure on prices warrants careful monitoring." The BoJ noted that private banks are becoming more cautious in extending loans to firms with high credit risks. "The fund-raising conditions of firms with high credit risks, especially of small firms, are becoming severe as private banks and investors are becoming more cautious in taking credit risks." The bank said it needs to monitor more closely developments in the lending behaviour of financial institutions.