Japan's core machinery orders tumbled in July at twice the pace economists' had expected in a sign that companies are delaying investment due to worries about a strong yen, slackening global growth and slow progress in reconstruction from the March earthquake.

The current account surplus fell more in the year to July than the median estimate as exports weakened, highlighting concerns that a strong yen and a stuttering global economy could hamper Japan's recovery from the post-quake slump.

The disappointing data could place some pressure on the government and the Bank of Japan, which highlighted risks to growth after leaving monetary policy on hold on Wednesday, to ensure that the yen doesn't strengthen further.

The yen has been attracting safe-haven demand from investors unsettled by Europe's sovereign debt crisis and signs of U.S. economic slowdown even as Japan struggles with its own debt burden and its new government faces a long battle to gain consensus over how to fund reconstruction from the March 11 earthquake and tsunami.

Uncertainty on overseas economies started to increase in July, which may have prompted some corporations to rein in their capital spending on lower expectations for business growth, said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance in Tokyo.

At the moment, there is little possibility that the economy will stall, as there will be more demand from post-quake reconstruction, but there is also a possibility that the debt problem in Europe may turn into a financial crisis.

Core machinery orders fell 8.2 percent in July from the previous month due to declines in orders from manufacturers and service sector firms, Cabinet Office data showed on Thursday. That compared with a median market forecast for a 4.1 percent decline and follows a 7.7 percent rise in June.

Compared with a year earlier, core orders increased 4.0 percent in June, much less than an 8.5 percent rise expected by economists.

Capital spending remains on a recovery trend, although the overseas slowdown and a possible delay in Japan's post-quake reconstruction are a concern, said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

Japan's current account surplus fell 42.4 percent in July from a year earlier, Ministry of Finance data showed, more than a median forecast for a 31.3 percent decline. The surplus stood at 990.2 billion yen ($12.8 billion), against a median forecast for a 1.18 trillion yen surplus.

Japanese policymakers and private-sector economists expect Japan's economy will recover in the latter half of the current fiscal year that ends in March, counting on export growth and post-quake reconstruction demand.

Risks to this scenario are growing due to signs of a global economic slowdown and worries about a delay in legislation needed to fund reconstruction spending.

Japan is on guard against further yen appreciation after intervening in currency markets last month when its currency approached a record high versus the dollar.

Japan's economy probably shrank at a faster annualized pace in the second quarter than the government's initial estimate as corporate spending fell at a quicker rate due to the strong yen and a slowdown in the global economy, a Reuters poll showed before the release of the data on Friday. ($1 = 77.325 Japanese Yen)

(Editing by Tomasz Janowski)

Japan Investment