That followed a 7.9 percent month-on-month decline in June and were far worse than a 3.7 percent increase expected by economists.
The weak data comes as a recent run of soft indicators cast doubt on the Bank of Japan's optimism that a steady economic recovery will help bring inflation to its 2 percent goal by around September 2016, keeping the bank under pressure to act.
Sluggish spending by firms and persistent weakness in private consumption and exports add to worries about slowing growth in China - Japan's biggest trading partner - which has unnerved global investors.
The BOJ is expected to offer a bleaker assessment on overseas economies at next week's policy review, although that analysis does not necessarily mean it intends to add stimulus soon. Many in the bank prefer to hold off on expanding stimulus for now.
Compared with a year earlier, core orders, which exclude those of ships and electric power utilities, increased 2.8 percent in July, versus a 10.5 percent annual gain expected.
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The Cabinet Office cut its assessment of core orders, saying a pickup is seen stalling.
Japanese policymakers are hoping that companies will use the record profits they earned from a weak yen and lower energy costs to boost wages and investment, generating a positive cycle of rising income and higher spending.
Japan's economy shrank less than expected in April-June due to inventory gains, although capital spending fell more than originally forecast, revised data showed on Tuesday.