TOKYO (AFX-ASIA) - The Cabinet Office maintained its assessment of the economy in February, saying it continues to deteriorate on weak corporate capital spending and employment, and also citing financial market worries. The government will carefully monitor the key indicators of capital investment, as well as conditions in the financial markets, it added. The office upgraded its assessment of industrial production to "a slower pace of decline" from the previous month's "sharp decline" on progress in inventory adjustments by makers of IT-related products, particularly LCDs. It also raised its assessment of imports, citing a "slower pace of decline", compared with the previous reference to a "declining trend." "The decline in imports slowed in February ... due to increased imports of foods -- such as poultry due to the outbreak of mad-cow disease -- and electronic machinery such as microchips and PCs," an official said. The assessment that exports show signs of bottoming out was left unchanged, though the official noted that the recent improvement in car exports is tailing off as makers cut back on special zero-interest financing deals in the US. "Car exports to the US and Europe dropped, with exports to the US falling off as zero-interest rate campaigns are reduced, and exports to Europe declining as Japanese carmakers increase local production," he said. The Cabinet Office said Japan should benefit from improvements in overseas economies, as well as the weaker yen, though this will likely be offset by the worsening situation at home. "External conditions are expected to improve as the US economy and some economies in Asia are showing signs of bottoming out," it said. The assessment of goods and services prices was upgraded to "falling" from the previous judgement that the fall in prices was worsening, partly due to the recent weakening in the yen. "On the other hand there are concerns over downward pressure on private demand that may result from the severe employment and wage conditions, as well as capital market developments," the office said. The Cabinet office maintained its assessment of private consumption, saying that it is "weakening", due to the poor employment situation. "The climate surrounding household income and consumer confidence is not seeing a large improvement," the official said. "Though new car (sales) increased in December, helped by the introduction of new models, they were mostly (cheaper) minicars that weigh on the value of consumption," he added. The employment and household income assessments were also maintained. "The severity of employment conditions is increasing, with the jobless rate rising to a high level, while overtime, wages and job offers remain weak," the office said. "Employment conditions have become increasingly severe, with unemployment rising to a new record of 5.6 pct. Salaries remain below the previous year's level and continue to weaken, with bonus payments also falling." The Cabinet Office also attributed its decision to leave its overall economic assessment unchanged, despite the improvement in industrial output, to concerns over the situation in financial markets. "The office maintained its assessment that the domestic economy is not expected to improve because of mounting concerns over the worsening of financial market conditions," the official said. He cited the recent rise in long-term interest rates to around 1.5 pct, that may affect the rates paid on borrowing by companies, as well as the fall in the benchmark Nikkei 225 stock index to below 10,000 points in January. "We need to carefully watch the movements in the financial markets," the official said.