TOKYO, Aug 5 - The Japanese government slightly upgraded its assessment of the economy in August for the first time in five months as stock prices held on to recent gains and U.S. economic prospects improved. "The economy remains overall flat. The environment surrounding the economy, such as stock prices and the U.S. economy, is showing signs of change," it said in a report issued on Tuesday, omitting a reference made in July to signs of weakness. A senior official in the Cabinet Office, which compiles the report, said the government's longer-term view was unchanged, but its assessment was better than in July because risk factors were receding. "Shares have stabilised after rising which we hope will be a positive factor for the economy," said Jun Saito, director of economic assessment and policy analysis at the Cabinet Office. "The U.S. economic recovery is also strengthening, giving hope for Japan's exports." The benchmark Nikkei stock average has gained some 23 percent since hitting a 20-year low in April. The government also upgraded its view on industrial production, saying it was flat rather than weakening, and said some aspects of the job market were improving. Data last week showed that industrial output for June declined 1.2 percent from May after a sharp rise of 2.6 percent in the previous month. For the three months to June, it declined 0.6 percent from the previous quarter. Japan's unemployment rate improved slightly to 5.3 percent in June from 5.4 percent in the previous month, with the number of unemployed falling for the first time in four months and the number of employed rising for the second straight month. On the other hand, the government downgraded its view on exports, saying they had weakened recently. The report said exports had declined by a seasonally adjusted 1.7 percent in volume in June compared with May. But Saito said that the weakness may be temporary. "I don't see exports falling continuously, given that recovery prospects in the United States are improving and that the impact from SARS should recede," he said. The report saw future risks in share prices and long-term interest rates, plus overseas economies, mainly sluggishness in U.S. labour conditions and the U.S. current account deficit. The U.S. Labor Department surprised markets on Friday with news that nonfarm payrolls shed 44,000 jobs in July. A gain of 18,000 jobs had been expected. The jobless rate slipped to 6.2 percent in July from 6.4 percent a month earlier, but that was seen as due in part to job seekers becoming discouraged and abandoning the search for work.