TOKYO (Reuters) - Japan's government downgraded its assessment of export performance for the second consecutive month in October on slowing shipments to Asia -- suggesting external demand may now contribute less to Japan's growth than initially anticipated.
The government left its overall assessment unchanged, saying the economy is set to recover at a moderate rate as high corporate profits fuel capital expenditure, which then spurs labor demand.
Domestic demand, boosted by increasing public works and consumer spending, has largely driven Japan's recovery from recession last year, but signs of weakening exports may mean Japan having to rely even more on domestic demand to continue growing.
"Exports are almost flat," the government said in its report for October. "Exports are expected to pick up in the future, because overseas economies are stable and because the yen has weakened, but we must be mindful of downside risks to overseas economies."
That assessment marked a further downgrade from last month, when the government noted recent gains in exports had started to slow.
It was also the first time in three years that the government downgraded exports for two consecutive months.
A decline in export volumes due to lower shipments of cars to the United States, India and Southeast Asian countries prompted the downgrade in October.
The government left unchanged its view that industrial output is slowly increasing and that business investment is showing signs of picking up -- mainly among non-manufacturers.
On deflation, the government's view was unchanged from September, saying Japan is approaching an end to deflation as consumer prices, excluding fresh food and energy, were firming up.
Prime Minister Shinzo Abe has put fiscal spending, aggressive monetary easing and economic reforms at the center of his drive to end 15 years of mild deflation and economic malaise.
Abe's cabinet will announce details of an economic growth strategy in early December, and investors are focusing on what measures the government will use to stimulate capital expenditure and reform the labor market.
(Reporting by Stanley White; Editing by Eric Meijer)