Japan's economy continues to recover at a moderate pace despite a deteriorating outlook for exports, the Japanese government said on Thursday.

In its monthly economic report, the Cabinet Office maintained its basic assessment of Japan's economy, saying the world's third largest economy "is on the way to recovery at a moderate pace."

Meanwhile, the Cabinet Office downgraded its views on exports, citing weakening demand in China and other Asian countries as the major reason.

"Slowing down of overseas economies is still a downside risk for the Japanese economy," the report said.

It is the second straight month that the Japanese government expected slowing exports after a sharp recovery in the past several months.

Analysts said the slowing exports appear to be temporary and they are going to be supported by a projected recovery in overseas economies and a weak yen.

However, imports are likely to remain strong due to solid domestic demand, while business sentiment is improving.

Economy and fiscal policy minister Akira Amari said there seems to be a pause in the increase in exports and personal spending, but favorable developments continue to take place amid an improvement in corporate profits and sentiment as well as a pickup in business investment, according to Kyodo news.

The report maintained its optimistic view of the short-term prospects for the Japanese economy, saying that "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 the price front, the report said, "recent price developments indicate that deflation is ending."