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Fed fatigued? Look to Asia this week

Johannes Eisele | AFP | Getty Images

Markets may be focused on the heavily anticipated Federal Reserve rate decision on Wednesday, but Asia also has a slew of key data and monetary policy decisions due this week.

Consensus among investors is for a gradual tightening of U.S. monetary policy, as the world's largest economy continues to show signs of expansion.

According to the Bureau of Labor Statistics, the economy added on average 237,000 jobs per month over the past 12 months, a rate most economists think is robust enough to warrant higher interest rates.

But in Asia, the picture is more mixed, as the economic slowdown in China and a slump in global commodities prices continue to impact economies across the region.

Japan's surprise U-turns

The Japanese economy, widely believed to have been in technical recession – typically described as two consecutive quarters of economic contraction - in the third of quarter of the year, sprang a few surprises on investors last week.

Revised Q3 data showed Japan's gross domestic product (GDP) rose at a 1 percent annualized rate. And the country's core machinery orders - an important indicator for capital expenditure - unexpectedly rose 10.7 percent in October, a second straight month of gains.

On Monday, the Bank of Japan's Tankan Survey, a quarterly measure of business, economic, and trade activity, continued the positive trend, with the official numbers on sentiment at 400 large Japanese manufacturing and non-manufacturing companies beating a Reuters poll.,

Business sentiment among large manufacturers at 12 points in the December Tankan survey. while sentiment at large non-manufacturers was at 25 points. The Reuters poll forecast upticks of 11 and 23 points respectively.

Japan will release its November trade data on Thursday. A drop in global commodity prices, the depreciation of the yen and slowing demand at major trading partners such as China are expected to weigh on the numbers.

The Bank of Japan will meet on Thursday and Friday for the final time this year and rate-setters are expected to stand pat.

Is China on the mend?

At the weekend China released a slew of indicators that pointed to signs of stability in the economy.

November retail sales showed an uptick of 11.2 percent on-year, boosted by record-breaking figures during this year's Singles' Day sales period.

Factory output increased 6.2 percent on-year in November, as did fixed-asset investment for the period between January and November, up 10.2 percent, on-year.

This week China will release another two important data points. On Tuesday, November foreign direct investment (FDI) numbers are expected. On Friday, the November house price index is due.

Moody's Analytics predicted $10 billion in FDI for November, flat on-year. The firm said China's slowing economy was reducing incentives for foreign investors - in October, after Beijing cut interest rates, there was a large capital outflow for the month.

"Lower interest rates and a weaker Yuan are reducing the returns to capital in China," the firm said.

Russia's pivot east continues

Meanwhile, Russian Prime Minister Dmitry Medvedev will begin a three-day state visit starting Monday.

Reports said the two powerhouses will sign deals on nuclear energy, aviation and space exploration. Medvedev is in China to attend the Shanghai Cooperation Organization summit (SCO) in Zhengzhou.

The SCO is a China and Russia-led security block whose members are Tajikistan, Uzbekistan, Kazakhstan, and Kyrgyzstan. India, Pakistan, Iran, Afghanistan, and Mongolia are observers.

Central bank decisions

Central banks in several countries will meet this week for the final time this year.

On Wednesday, the Bank of Thailand is expected to keep the country's official interest rate at 1.5 percent, as inflation falls below the bank's target.

Indonesia's central bank will announce its monetary policy Thursday morning, just hours after the Fed announcement. Bank Indonesia is expected to keep interest rates unchanged at 7.5 percent.

Moody's Analytics said, "We are unlikely to see a rate cut in Indonesia, but odds of a rate hike are there if volatility increases after the Fed's rate hike."

On Friday, Taiwan's central bank is expected to meet. Earlier in September, the central bank cut benchmark interest rates for the first time in six years from 1.875 percent to 1.750 to support economic growth.

Data and more Down Under

New Zealand will release its third quarter gross domestic product (GDP), the widest measure of economic health, on Thursday.

Moody's Analytics said it expected the economy to grow by 0.9 percent on-quarter due to upticks in retail spending, construction, and exports.

On the other hand, "agriculture was a weak spot with the flagship dairy industry enduring a poor start to spring and increased cow culling due to the sustained slump in dairy prices," the firm said.

Meanwhile, Australian Prime Minister Malcolm Turnbull is expected to begin a three-day visit to Japan on Thursday, where he will meet Prime Minister Shinzo Abe. Reports suggest the two will aim to strengthen defensive ties.

— Reuters contributed to this report.

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