Risk aversion dominates the market as investors are preparing for FOMC rate hike later in the week. Sentiments are also weighed down by the plunges in oil and Chinese Yuan. Nikkei ends the day down -1.8%, or -347 pts, to close at 18883.42. WTI crude oil stays week and is hovering around 35.5 for the moment. Movements in the currency markets are relatively small as major pairs and crosses are bounded in Friday's range. Canadian dollar recovers mildly as markets digest last week's sharp fall. Aussie is also mildly higher. Meanwhile, Yen is generally lower after today's Tankan survey.
From Japan, the Tankan Large manufacturer index was unchanged at 12 in Q4 versus expectation of 11. Large manufacturer outlook, however, dropped to 7 versus expectation of 11. Non-manufacturing index was unchanged at 25 versus expectation of 23. However, non-manufacturing outlook dropped to 18 versus expectation of rise to 22. Large all industry capex rose 10.8% versus expectation of 10.2%. Some economists noted that the set of results would give BoJ rooms for holding hands off from additional easing at least still Q2.
The latest set of macroeconomic data has shown signs of improvement in Chinese economy. Industrial production grew 6.2% yoy in November, up from consensus of 5.7% and October's 5.6%. Reduction in auto buyers' tax had helped boost auto production which had contributed significantly to IP growth last month. Meanwhile, Urban FAI expanded 10.2% yoy in the first 11 months of the year, same growth as the first 10 months. Retail sales gained 11.2% yoy, up from the 11% growth in October. Headline in IP, FAI and retail sales also showed improvement in November, suggesting the government's pro-growth measures are taking effects, although the accuracy and credibility of China's statistical data remain questionable. The upbeat set of November data should likely bring a rebound in GDP growth for 4Q15.
Staying in China, the Foreign Exchange Trade System (CFETS) announced a new renminbi index last Friday. The government believes that "the bilateral renminbi-USD exchange rate is not considered a good indicator of the international parity of tradable goods". Introduction of the index would help gauge renminbi's performance against a basket of trade weighted currencies as "a basket of currencies can better capture the competitiveness of a country's goods and services, and better enable the exchange rate to adjust". We are concerned that the index would mask the degree of renminbi depreciation.