Yuan takes another step forward as a world currency

Australia's stock exchange operator ASX and Bank of China said on Tuesday that they will provide a yuan settlement service to Australian and Chinese financial markets by mid-year, marking the latest step in the yuan's development as a global currency.

China is Australia's biggest trading partner and Australian firms have increasingly been settling their Chinese trade in yuan rather than U.S. dollars, according to local media reports.

(Read more: China's bank lending party keeps on rolling)

The new yuan settlement service will allow Australian firms to make trade and investments with China through the ASX, which has a "proven market infrastructure," the ASX said in a statement.
"What today is about is a milestone in the journey Australia and China are taking together," Australia's Assistant Treasurer Arthur Sinodinos told CNBC's Asia Squawk Box.

Ian Waldie | Bloomberg | Getty Images

Chinese authorities have been stepping up efforts to improve the use of the yuan, which remains tightly controlled by Beijing.
In October for instance, China launched a currency swap deal with the euro zone.
(Read more: Yuan moves one step closer to global currency status)
The yuan, also known as the renminbi, is now one of the world's ten most frequently traded currencies, the Bank of International Settlements said last September.
Sinodinos told CNBC that Australia was not perturbed by recent signs that China's economy is losing its momentum.

"Australia takes a long-term view of the China relationship. China is going through a transition. Their transition will lead to consumption-led growth, it will lead to increased demand for a diversified group of products and services," Sinodinos said.

(Read more: Yuan now one of world's most tradable currencies)

"Australia's economy is also going through a transition where we've had growth based on record levels of resource investment. We're diversifying our economy as well and we're well placed to service many of these emerging needs from China," he added.
Australia, Japan and the U.S. are the only countries to allow full convertibility of the yuan, according to media reports.
— Writing by CNBC

Japan's GDP miss – What went wrong?

Japan's economy grew at a much slower pace than expected at the end of 2013, stoking fears that Abenomics' momentum has stalled, but some economists say the dip will prove fleeting.

Japan's economy grew 0.3 percent in the fourth quarter of last year from the previous quarter, below analysts' expectations in a Reuters' poll for a 0.7 percent gain, data on Monday showed. On an annualized basis the economy grew 1 percent, below expectations of 2.8 percent.
"Weak Q4 GDP (gross domestic product) figures show that the surge in spending ahead of the consumption tax hike has yet to come," said Marcel Thieliant, Japan economist at Capital Economics.
(Read More: Is the Japan story getting threadbare?)

"Looking ahead, last-minute spending to avoid the higher sales tax will likely lead to a further acceleration in economic growth in the first quarter [of 2014], followed by a slump in the second quarter," he added.

Many economists have been expecting consumers to rush out and stock up on supplies prior to the sales tax hike due in April, which will raise consumption tax to 8 percent from 5 percent, in a move some fear could strangle Japan's economic recovery so far as consumers suffer negative wage growth.

Bloomberg Contributor | Bloomberg | Getty Images

However, as Capital Economics' Thieliant pointed out, the spending surge has not seemed to take hold yet, given the disappointing fourth quarter number.
(Read more: China PMI, Bank of Japan in spotlight this week)

And according to IHS Global Insight's Japan economist Harumi Taguchi, weak growth in wages and rising fuel and food costs could have impinged on Japanese consumers' appetite to go out and spend in preparation for the tax hike.
Now, many economists are now arguing that the weaker-than-expected fourth quarter growth figure could prompt further easing from the Bank of Japan at this week's policy meeting concluded on Tuesday, sooner rather than later, helping boost 2014's growth levels.
"With real exports seriously under-performing and the recent rise in the yen, a further monetary easing step could be in the offing earlier than expected, possibly in a surprise move at the upcoming meeting," said Uwe Parpart, chief strategist at Reorient Group.

Why hasn't Abe fired the third arrow yet?

Binay Chandgothia, Portfolio Manager at Principal Global Investors, lists out factors that are hampering Japan's structural reform process.

IHS's Taguchi added that she saw Japan's real GDP growth turning positive in the third quarter of 2014 as extra stimulus from the BOJ, combined with better external demand boosts the economy.
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Japan's growth in the fourth quarter was fueled by strong rises in private consumption – which grew 0.5 percent on quarter – and non-residential investment, which ticked up 1.3 percent on quarter.
However, faster private demand was offset by slower public demand, and a sharp decline in net exports, which shaved 0.5 percentage points off headline growth, lowered the overall figure.
And several economists flagged the sharp fall in machinery orders in December as a concern, which Capital Economics said raised the chances of a downward revision in second estimate of Q4 GDP due out on March 10.

(Read more: Nikkei's rout - Is it a signal to buy?)

Prime Minister Shinzo Abe's ambitious plan to reform Japan's struggling economy has included aggressive monetary easing, fiscal stimulus and structural reform. Since it has been put into action, it has been effective in dragging Japan out of recession and helped stimulate a healthy level of inflation – last recorded at 1.3 percent year on year - but doubts remain over Abe's commitment to structural reform.
"It is now the turn for private sector to drive the economy and the third arrow: the growth strategy, which has not actually had an effect yet, and this is seen as the key for sustainable growth, as well as deregulation, which will be of key importance," said IHS's Taguchi.
In Asia trade on Monday the yen traded down 0.2 percent at 101.37 per dollar, its highest level against the dollar since February 6.

— By CNBC's