Asia report: Japan soars while China slumps

Japan's markets soared into February on Monday, while China slumped amid signs of a weakening economy.

The Shanghai Composite Index finished down 1.8% to 2,688.85, after official manufacturing data showed the sixth consecutive monthly contraction for the sector. The index hit 49.4 - down from 49.7 in December, and its lowest level since August 2012.

The private, unofficial measure of Chinese manufacturing - the Caixin PMI - edged higher to 48.4 from 48.2 in December, though with a figure below 50 that still indicated a contraction.

This week is the last week of trading ahead of the week-long Chinese New Year holiday, when the markets remain closed.

In Hong Kong, the Hang Seng Index closed down 0.45%, while traders in Tokyo rallied ahead to close the Nikkei Stock Average up 1.98%.

The increase in Japan added to Friday's 2.8% gains, after the Bank of Japan surprised everyone by cutting official interest rates into the negatives. There were also a number of positive earnings results out of the islands.

Sony Corporation was up 12.4%, after the electronics and entertainment conglomerate reported third-quarter net profit as rising by 33.5% from a year earlier to JPY 120.1bn (£693.9m).

The company cited strength in its PlayStation gaming business and Sony Pictures film production unit as being behind the gains.

"Financial markets are now watching how Beijing will respond to Tokyo's decision", said Peak Asset Management executive director Niv Dagan. He said he doesn't believe China would begin a major currency devaluation, though he did note pressure was mounting "from record capital outflows and fears the economy is slowing faster than expected".

Analysts were also worried the Shanghai Composite was yet to reach the bottom of its trough, with some saying the benchmark could hit 2,500.

Dagan wrote that China's manufacturers were facing "even more challenges this year, as the government plans to reduce excess industrial capacity and clean up unprofitable 'zombie companies' that survive on bank loans and government subsidies".

Other official data out of the region on Monday included South Korea's export figures. The peninsula's exports were down a woeful 18.5% in January, the steepest fall since the global financial crisis. It was also the 13th month of declines for the country's export sector.

Those Japanese gains led the Kospi up 0.67%, the S&P/ASX 200 up 0.76% and the S&P/NZX 50 up 0.1%.

Oil was down after Asian trading, however, with London Brent losing 0.73% to $35.75 a barrel. West Texas Intermediate was down 1.57% to $33.10.

In currencies, the yen weakened by 0.09% to JPY 121.25 against the US dollar on Monday - a move that would help Japan's export market.

Both the offshore Chinese yuan - which floats freely, unlike the loosely-pegged onshore yuan - and the Korean won were 0.1% weaker against the greenback. Beijing fixed the onshore yuan slightly higher, at CNY 6.5539 per USD, from 6.5516.

In the antipodes, the Australian dollar was 0.23% weaker at AUD 1.4150 per USD, and the Kiwi was 0.3% weaker at NZD 1.5469.