Key machinery orders in August rose less than expected, the Japanese government said Friday, as companies held back on investment.

Orders climbed 0.5 per cent from July to 668.1 billion yen (7.56 billion dollars), an improvement from the month before, when they fell by a record 9.3 per cent to 664.7 billion yen, the lowest level since the start of government surveys in 1987.

However, the increase was below analyst expectations, indicating that Japanese companies remained cautious over the extent of the country's recovery from its worst postwar recession.

Machinery orders are an important indicator of business investment in the upcoming three to six months.

Orders in the manufacturing sector were up 4.9 per cent while orders in the non-manufacturing sectors dropped by 0.6 per cent, the Cabinet Office said.

The August orders were down 26.5 per cent year-on-year.

Business sentiment among Japanese companies has improved slightly, but a majority of companies remained pessimistic with 10.8 per cent of large companies planning to cut capital spending this year, the Bank of Japan's quarterly Tankan survey showed this month.