JAPAN’S core machinery orders fell at a record pace in May in a sign that companies are feeling the pain from slowing global demand.

    But the data are not likely to be alarming enough to nudge Japan’s central bank into loosening monetary policy this week.

    Core machinery orders, which help gauge the strength of capital spending, fell 14.8 percent in May, data showed yesterday, much worse than a median forecast for a 3.3 percent drop and the biggest decline since comparable data became available in April 2005.

    The government warned against reading too much into the highly volatile data series, saying the drop was exaggerated by seasonal factors and mostly a reaction to the previous month’s rise, which was inflated by big, one-off orders from chemical and machinery makers.

    But the weaker-than-expected data suggest that any recovery in Japan’s economy will be modest as Europe’s debt crisis and slowing growth in big markets such as China could make companies less willing to increase capital spending.

    “External demand looks weak. A lot of companies have turned cautious about overseas economies,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management in Tokyo.

    “The global economy is weaker than we thought.”

    Weak U.S. payrolls data last week underscored the fragile state of the world’s largest economy, while deepening pain from the euro zone debt crisis drove the European Central Bank to cut interest rates and the Bank of England to expand its quantitative easing program.

    China, the main driver of world growth, also surprised markets with a rate cut last week and will publish second-quarter GDP data this week that is widely expected to be the worst in at least three years.

    The Bank of Japan, however, is expected to hold off on easing monetary policy at its two-day meeting that will end Thursday, convinced that its stimulus steps in February and April are enough to keep the Japanese economy afloat for now.

    While many Japanese central bankers are worried about the outlook, they do not see enough evidence that Japan’s recovery is under severe threat and thus prefer to save their limited options especially with the yen off its record highs.

    “Public spending and personal consumption are driving the Japanese economy but economic growth is likely to slow after the summer, partly as government subsidies for low-emission cars run out of money,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.

    “The central bank is likely to sit tight this week given the current yen movements, but it could ease policy further as early as September if it becomes clearer that the economy is slowing.” (SD-Agencies)