Japan's core machinery orders fell more than expected in September and firms expect orders to fall further in the current quarter, showing that business investment remains the weak link in generating a sustained economic recovery.

The 2.1 percent fall in core orders, which exclude ships and electric power utilities, was bigger than a 1.4 percent drop forecast by economists in a Reuters poll and followed a 5.4 percent gain in August, Cabinet Office data showed on Wednesday.

Companies surveyed by the Cabinet Office forecast that core orders would fall 2.1 percent in the final three months of 2013. They rose 4.3 percent in July-September, which was the second straight quarter of increase.

Sluggish capital spending is a source of concern for Prime Minister Shinzo Abe, who needs a pick-up in business investment to help drive a sustained recovery in the world's third-largest economy after 15 years of grinding deflation.

The Cabinet Office stuck to its assessment of machinery orders, saying they are picking up, and analysts said capital spending still seemed on track for a gradual recovery.

"The trend of capital spending will depend on the economic situation from now on. Companies seem hesitant to boost capital spending due to uncertainty over overseas economies, and domestic conditions after a sales tax hike next April," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"As such, capital spending is on track for a recovery but it is unlikely to pick up the pace of recovery for the time being."

Compared with a year earlier, core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, increased 11.4 percent in September, against a 12.6 percent gain expected.

Japan's economic growth has so far outpaced other G7 nations this year, as Abe's reflationary policies have boosted demand and weakened the yen, benefitting exports.

Data on Thursday is forecast to show growth likely slowed in July-September, but it is seen accelerating again as consumers' spend up before the sales tax increase next April.