Asian Market Update: Japan GDP Plummets to Multi-Decade Lows while Nation's Finance Minister Dodges Accusation of Insobriety at G7; Large Rio Tinto Shareholder Speaks Out Against Chinalco Deal, Favoring BHP; South Korea's January Exports Fall Below Initial Estimates

- Following a 5% shellacking of the Nikkei last week, Japan's markets had hoped for a better start to the new week. Instead, Japan's Q4 GDP contraction surpassed estimates and increasingly beleaguered Aso administration faced another embarrassment from its Finance Minister at the G7 summit. Q4 GDP came in at -3.3% q/q and at an annualized -12.7% contraction - the worst yearly slump since the first oil crisis in 1974. The weakness was broad-based by all measures: Consumer spending shrunk 0.4%, business spending saw the worst fall in over 7 years at -5.3%, and exports decline set a record with a -13.9% figure. Cabinet spokesman Kawamura acknowledged the poor Q4 performance, stating that the administration is taking the GDP report "seriously". However, what appears to be taken less seriously is Japan's government itself. Support for Japan's PM Aso has declined yet again, plummeting all the way to 9.7% - the lowest level for any administration since Mori's numbers in 2001. Moreover, Japan's finance minister Nakagawa humiliated the cabinet further, appearing intoxicated at the G7 summit, where he slurred his response to questions and appeared to be asleep during some parts of the reception. Both Nakagawa and BOJ Governor Shirakawa attributed the questionable behavior to cold medicine, however the political opposition to ruling LDP is calling for Nakagawa to step down. Elsewhere in Tokyo, Toyota had reportedly cut its domestic output view by 54% for the current quarter, targeting 519K vehicles to be sold through the end of March vs prior year's 1.13M. Nikkei225 was sharply lower earlier in the session but pared back some of that weakness, trading down 0.3% going into the final stretch of the day.

- In Sydney, the highly publicized Rio Tinto deal with China's Chinalco was expected to receive moderate scrutiny from the Aussie regulators. However, it is the company's institutional shareholder that are raising the early red flags and waving them back in the direction of BHP. According to a Telegraph report, major shareholders were determined to block the Chinalco transaction, having told BHP that they will support a rights issue for Rio Tinto to address its debt if that would encourage a new BHP bid for the company. Neither Rio Tinto nor BHP benefited from these developments, falling by over 1% in a comparable decline to the broad S&P/ASX index.

- In Korea, January exports reported earlier by the Knowledge Ministry were revised lower by the Customs service, with data showing shipments falling a record 33.8% on a y/y basis. The latest trade data comes on the heels of last week's more optimistic report that showed exports rising 17% y/y in the first 10 days of February, which, if substantiated, should diffuse the January downgrade.
Meanwhile, S Korea's banking sector continued to reflect painfully slow recovery in credit demand, with Woori Finance CEO forecasting lower profitability in 2009 and the need for as much as a KRW2T draw from state subsidy. The broader Kospi index traded off by over 1% going into the final hour.

- In foreign exchange, risk aversion reinforced by Japan's GDP and thin pre-US holiday markets helped the majors gap in favor of the greenback and the Yen, all in spite of the perceivably more stabilizing toned down rhetoric on China emerging at the weekend G7 meeting. EUR/USD was lower by a full big figure from Friday's close below 1.2750, USD/CHF approached 1.17 for the first time since early Thursday, and GBP/USD was below 1.42 after peaking above 1.46 on Friday - unquestionably hurt by broad selling in UK's Lloyds Group. Japanese Yen was bid higher after a brief foray above 92.00 in the prior session - a level that saw broad JPY buying interest on two prior occasions earlier in the month. Commodity currencies also suffered in line with pared back risk appetite - AUD/USD fell below 0.65, NZD/USD tested the downside of 0.52, and USD/CAD rose one big figure from Friday's close to mid-1.24. After moderate recovery late last week,     SGD was also broadly weaker, with USD/SGD rising to near-two week high above 1.5140.

- Spot Gold is declining for the second consecutive session. Today's decline in gold prices comes as the USD is broadly firmer against the European major and commodities currencies. In terms of gold demand, the SPDR Gold Trust ETF once again increased its holdings of bullion to a record level. As of Feb 13, the ETF raised its gold holdings to 985.9 tons vs. 970.6 on Feb 12. Additionally, according to data from the Commodity Futures Trading Commission (CFTC), large speculators raised their net-long positions in gold by 5% for the week ended Feb 10. At the time of writing, crude oil is higher, after rising by 10% on Friday's NY session. On Friday's session, an Iranian oil official reiterated that an OPEC production cut is a “strong possibility” with oil trading below $40/bbl. In China, oil company CNPC noted that the Chinese government would set aside part of its foreign exchange reserves for an oil fund. In the past, press reports have noted that the Chinese government might seek to