The government on Thursday maintained its basic assessment of the economy after last month's upgrade, but downgraded its view on exports for the second straight month due to weakening demand in China and other parts of Asia.
The third-largest economy "is on the way to recovery at a moderate pace," the Cabinet Office said in its monthly economic report.
It meanwhile upgraded its assessment of imports on solid domestic demand and raised its view on business sentiment thanks to upbeat data in the Bank of Japan's quarterly "tankan" business sentiment survey released earlier this month.
The government said exports are "almost flat," with the pickup pausing after rebounding sharply in the past several months, noting that a "slowing down of overseas economies is still a downside risk for the Japanese economy."
According to a Finance Ministry report, exports fell 1.9 percent in volume in September from a year earlier for the first decline in three months, though they rose 11.5 percent in yen terms.
It is the first time since September and October 2010 that Japan has lowered its opinion on exports for two months in a row.
But an official said the pause in export growth appears temporary and is likely to resume in the long run amid recovery projections for overseas economies and continued help from the weakened yen, which makes Japanese products more competitive overseas.
The rosy short-term view for Japan was meanwhile kept intact, as "the recovery is expected to take hold as household income and business investment continue to be on upward trends, while exports pick up and the effects of policies develop."
On investment, which Prime Minister Shinzo Abe sees as a pillar of growth, the government left its view unchanged after upgrading its September assessment, saying it "shows movements of picking up, mainly among nonmanufacturing industries."