TOKYO (Kyodo) -- Japan's economic recovery appears to have halted, the government said Tuesday, downgrading its overall assessment of the economy for the first time in 20 months, citing weak exports and industrial output amid concern about the recent sharp rise of the yen. "The economic movements appear to be pausing recently," the Cabinet Office said in its monthly report for October. Last month, it said the economy "continues picking up" while suggesting that the strength of the Japanese currency could pose downside risks to growth. The yen has risen to its highest level against the U.S. dollar in over 15 years, even as the Japanese government stepped into the currency market last month for the first time in more than six years to stem the yen's rise, which has adversely affected the earnings of the country's exporters. The government will place top priority on addressing Japan's persistent deflation and work "with the Bank of Japan to launch vigorous and comprehensive policy efforts," the office said in its latest report. Japan's exports, mainly composed of electronic devices and parts as well as general machinery, "have been weakening of late," it said. Exports grew for the ninth straight month in August. But a government official said that September data could show clearer signs that exports have fallen to Asia, where production is slowing. Slower exports drag down industrial output. The report said production "has been in a weak tone" as government data showing it continued to decline in the three months through August, with further falls expected for September and October. The Cabinet Office lowered its assessment of exports for the second consecutive month and that of industrial production for the first time in two months. The downgrading of the two major components casts a shadow over the overall economic outlook, the official said, as prolonged weakness in exports and production could translate into sluggish corporate earnings and a weak appetite for capital spending as well as shorter labor hours, which would result in lower wages. The downward revision to the overall assessment was the first since February 2009. The word "pausing" was last used in July 2008, two months before the bankruptcy of U.S. investment bank Lehman Brothers Holdings Inc., which triggered the global financial turmoil. The government's move came amid rising expectations that the BOJ, which recently sanctioned additional monetary easing to help bolster the economy, will cut its estimates later this month for the country's economic growth and inflation in the current and next fiscal years. The Cabinet Office maintained its evaluations for most of the other components in the report. Corporate earnings are "improving," business investment is "picking up" and employment conditions remain "severe," it said. Although private consumption is "picking up," the report added that recent price developments show that the economy is "in a mild deflationary phase." The office also left unchanged its basic assessments of overseas economies. While expressing concern about high unemployment and other risk factors for the U.S. recovery, it pointed out that China and Europe are expected to tread their growth paths although at slower paces.

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