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The Bank of Japan on Monday left its gloomy economic assessment unchanged, saying economic activity remains in an adjustment phase due largely to weak industrial output and exports.

“Adjustments in economic activity have been under way, as production declines reflect a fall in exports,” the BOJ said in a monthly report on recent economic and financial developments.

The central bank used the same expression in assessing the economy in April, when it downgraded its economic evaluation for the second straight month.

Also left unchanged in the May report was its assessment of the economic outlook.

“Overall, the adjustments are likely to continue for some time, mainly in production,” the BOJ said.

But it downgraded its evaluation of capital investment and industrial production, and said corporate confidence, especially among manufacturers, is deteriorating.

Corporate capital investment “seems to be leveling off” and is forecast to “peak and then start a downturn,” the report said.

As for production, the BOJ said it is “declining sharply, reflecting developments in final demand as excessive inventories of electronic parts and some materials build up.”

Industrial output is expected to follow a declining trend due to weak capital investment.

These weaknesses are likely to damage corporate profits and business sentiments, according to the report.

“The environment surrounding corporate profits is becoming more severe in line with the decline in exports and production, and business sentiment of firms is worsening, particularly in manufacturing” the BOJ said.

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