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TOKYO, Dec 22 (Reuters) - The Japanese government lowered its assessment of the economy for the third straight month, citing rapidly falling output and corporate profits as the world's second-largest economy is gripped by recession.
The government repeated its warning that the Japanese economy could further deteriorate if the financial crisis deepens and stock and currency markets stay volatile.
"Economic conditions are worsening," the government said in its monthly report for December. It was the first time the government used that expression since February 2002. In November, it said downward pressure on Japan's export-oriented economy was increasing.
"Most of the data that came in recently said the same: conditions are deteriorating," said an official at the Cabinet Office, which compiles the report.
The government grew more pessimistic about output and corporate profits, saying they are falling sharply. It said in its November report that they were falling.
Japan's industrial output fell by a bigger-than-expected 3.1 percent in October, with a record 8.6 percent fall seen for the fourth quarter.
Rapidly falling exports, hit by the global economic downturn, are the main reason behind the revision.
Government data showed on Monday that Japanese exports posted a record annual fall in November, hit by a plunge in demand for Japanese goods in Asia and United States.
A Ministry of Finance survey showed earlier this month that Japanese companies' profits in July-September dropped the sharpest in six and half years.
The survey also found that Japanese companies cut plant and equipment spending by 13 percent in the quarter compared with the same quarter a year earlier. The government cut its view on corporate capital investment in the report, saying it was declining. The November report said it was flat.
The sharp deterioration in the business environment has also led the government to lower its assessment of the job market. It said in the December report that job conditions are worsening rapidly, compared to the previous month's view that they were worsening.
The Cabinet Official cited drastic job cuts and reports of withdrawals of employment offers by companies as reasons behind the downgrade.
The government is due to release unemployment figures and industrial output data for November on Friday. The numbers are expected to be worse than in the previous month. (Reporting by Yuzo Saeki; editing by Sophie Hardach)