TOKYO, Japan: In July, Japan's core machinery orders extended gains, bringing hope that business growth spending may offset short-term issues caused by a global economic slowdown and a weaker yen.

The surprise increase in core orders, a barometer of capital expenditure, could offer temporary relief for policymakers who are hoping for corporate investment to drive domestic recovery.

However, a Reuters Tankan survey showed that the business confidence of manufacturers in Japan, the world's third-largest economy, declined after a seven-month high in September when the corporate sector was dealing with high raw material costs.

Cabinet Office data showed that core orders, a highly volatile data series regarded as a guide to capital spending in the coming six to nine months, grew 5.3 percent in July from the previous month.

Supported by several medium-sized orders for railway cars, the increase followed a 0.9 percent rise in June, and was stronger than the 0.8 percent contraction predicted by economists in a Reuters survey.

Darren Tay, Japan economist at Capital Economics, said the result "points to strong non-residential investment growth this quarter, chiming with solid capital shipments growth in July and record corporate profit margins in the second quarter," as quoted by Reuters.

Although Japan faces higher import costs due to the falling yen, which has lost about 20 percent against the dollar this year, the weaker currency also makes producing local goods more attractive for exporters.