TOKYO, Sept. 20 (Xinhua) -- The Japanese government on Tuesday maintained its assessment of the current state of the economy in September saying that conditions were improving but downside risks remained from overseas economies and pressures from the nation's domestic employment situation.

According to the Cabinet Office's monthly economic report, industrial production here was picking up due to key supply chains being restored following the March disasters and this had had a positive effect on Japan's fragile export sector.

But the government noted that downside risks to the economy were still present, including the leveling off of corporate profits and lingering concerns remaining about business conditions for corporations following the adverse circumstances presented by March's quake and ongoing nuclear disaster.

"Firms are cautious in their judgment on current business conditions, partly reflecting lingering severity due to the earthquake disaster," the office stated on Tuesday.

In addition, the government said that the employment situation in Japan was far from recovering. "The employment situation experiences a pause in improvement and remains severe," said the office.

Japan's economy remained in a mild deflationary phase, the office added, and volatile fluctuations in exchange rates, particularly the strength of the yen versus its major counterparts, continued to be of major concern to the government and was impacting the employment situation as well as the stock markets.

The government intended to combat the yen's recent surge and in its 2011 third supplementary budget for fiscal 2011, would address not just post-quake reconstruction efforts, but also the downside risks posed to Japan's economy by the yen's appreciation and what the office described as the "hollowing-out of industry".

According to the latest report, the government would continue to lean on the central bank, while closely monitoring monetary asset markets and expecting the Bank of Japan in unison with the government to "support the economy by appropriate and decisive monetary policy management."