The government on Monday left unchanged its assessment of the economy for April, but it expressed caution amid concerns over the U.S.-led war in Iraq, the future of the U.S. economy and the spread of severe acute respiratory syndrome across Asia.

"While the economy has become roughly flat, uncertainty still remains," the Cabinet Office said in the monthly economic report for April, using roughly the same wording as a month earlier.

The March report said, "While the economy has become roughly flat, uncertainty is increasing due to the situation surrounding Iraq."

According to the April report, the economy can make an incipient recovery if the United States and other economies make a sustainable recovery, but uncertainties over the current and postwar situation in Iraq may exert downward pressure on final demand.

"The government will carefully watch economic situations in Japan and abroad, especially the impact of the Iraq war and SARS on the world economy," Cabinet Office economist Jun Saito said. "These factors have hit Japan's service industry, such as tourism and airline industries."

According to the report, corporate profits are improving and capital spending is gradually recovering, as seen in several recent economic indicators.

Exports are increasing gradually, but private consumption remains generally flat, according to the report.

But the report notes that industrial production has declined and the unemployment rate remains at near-record levels.

It says a temporary increase in crude oil prices linked to the Iraq war stopped consumer prices from declining further. But the Cabinet Office said persistent deflation continues.

The report says a recovery in the U.S. economy has weakened, partly on worsening personal consumption, while Asian economies are gradually expanding.

The economy is slowing in the 12-member euro zone and Britain, whose consumer confidence and retail sales indexes posted a sharp decline in recent months, it says.

Japan's exports to other Asian economies remained firm, especially in the areas of machinery instruments and chemical products, the report says. Exports to China registered a robust increase.

Exports to the EU marked a gradual increase, while exports to the U.S. declined, especially those of automobiles, according to the report.