Japan's core machinery orders fell 12.7 percent in February after an unusually strong previous month, in an expected decline that is unlikely to alter the view that the Bank of Japan will sit tight on interest rates for now.
The weak data pushed up bond futures, hit shares of machinery makers such as Fanuc and underlined the view that Japanese companies will remain wary over uncertainties at home and overseas.
Core private-sector machinery orders, a highly volatile series seen as an indicator of capital spending in the coming few quarters, had been forecast to fall 14 percent.
A sharp fall has been widely expected after huge railway car orders boosted core orders 19.6 percent in January -- their heftiest gain in seven years.
While analysts do not expect a rate cut any time soon, some said the BOJ may lower rates later this year if a U.S. slowdown and global credit crisis hit the Japanese corporate sector hard.
"The machinery orders are unlikely to pick up momentum this year as long as uncertainty over the U.S. economy lingers," said Yoshimasa Maruyama, an economist at BNP Paribas.
"Given deteriorating corporate sentiment and profits as seen in the tankan, the BOJ will downgrade its view on the economy in the twice-yearly outlook report due out later this month, and may be forced to cut interest rates later," Maruyama said.
Capital spending has been a pillar of Japan's current expansion cycle since 2002 but economists have worried that it could sputter as fear of a U.S. recession is looming large.
The Bank of Japan's tankan corporate survey last week also showed big Japanese firms planned to cut capital spending by 1.6 percent in the business year that started on April 1 -- the bleakest capital spending reading for a March tankan since 2002.
Worries about the global credit crunch, rising raw material costs and shaky Japanese share prices have helped to push Japan's business sentiment to a four-year low in the tankan survey.
The Japanese central bank downgraded its assessment further on Wednesday, saying the economy is slowing down and dropping its 1 1/2-year-old reference that the economy is expanding.
Reuters poll showed on Wednesday more than two-thirds of market players expect the BOJ to keep rates on hold this year and raise rates next year.
Swap contracts on overnight call rate are pricing in less than 10 percent chance of a rate cut.
BOJ data also showed on Thursday bank lending rose 1.1 percent in March. Growth in bank lending has been slowing early last year, with banks saying few companies need to borrow funds.
Money supply grew 2.2 percent in March, a bit lower than economists' consensus forecast of a 2.3 percent increase.
Japan's current account surplus rose 2.9 percent in February from the same month a year earlier, in line with a market median forecast for a 3 percent rise, government data showed.