By Kaori Kaneko

TOKYO, Sept 10 (Reuters) - Japan's government kept itsassessment of the economy unchanged in a monthly report on Fridaybut warned of increasing downside risks to growth such as thestrong yen and slowing overseas growth.

The government also downgraded its view on exports, sayingthey are increasing at a slower pace as demand for Japanese goodsin China and other Asian nations moderates.

"The economy continues to pick up and is moving toward aself-sustained recovery," the government said on Friday in thereport for September.

"But the environment has become more severe recently," itsaid, warning of risks such as a slowdown in overseas economies,as well as currency and stock market volatility.

Deepening concerns about the U.S. economic outlook andEurope's banking sector woes pushed the yen to a fresh 15-yearhigh against the dollar this week as investors fled risk.

Japanese officials have been trying to talk down the yen,even threatening currency intervention, with little success.

"Risks from overseas economies are materialising and that isshowing in the slowdown in exports," Keisuke Tsumura,parliamentary secretary of the Cabinet Office, told reporters.

"Another factor is the yen's rise, which is posing a risk tounderlying growth and the outlook for the economy."

But the government upgraded its assessment on capitalspending for the first time in three months, saying it waspicking up. In the previous month's report, it said capitalexpenditure was levelling off. (Editing by Edmund Klamann)