It`s shaping up to be a busy week for Asian markets: a possible US government shutdown looms, central banks in Japan and Australia meet, a decision on a controversial rise in Japan`s sales tax is due and a snapshot of Chinese manufacturing activity is on the agenda.

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Budget spending must be agreed by the US Congress before October 1 to prevent a government shutdown that could leave federal employees facing unpaid temporary leave. The prospects of the first shutdown in 17 years was looking more likely after US lawmakers failed to reach an agreement on budget funding over the weekend.

(Read more: US shutdown nears as house votes to delay health law )

"I think there is a good chance of the government shutting down, it has happened before," Paul Bloxham, HSBC`s Chief Economist for Australia and New Zealand, told CNBC Asia`s " Squawk Box ."

"But the bigger issue is the debt ceiling and that`s what markets are likely to focus on," he added. The limit for US government borrowing must be extended in October so that the US Treasury can continue to borrow money and honor its sovereign debt obligations.

(Read more: Brawl in US Congress - should the world care? )

Key week in Japan

Wrangling in US Congress aside, this week sees a number of key events in Japan that should put Tokyo in the spotlight.

Prime Minister Shinzo Abe on Tuesday is expected to unveil his decision on whether to press ahead with a controversial rise in the consumption tax next year.

The closely-watched Tankan survey of Japanese business sentiment is scheduled for release on Tuesday, while the Bank of Japan concludes a two-day policy meeting on Friday.

If Japanese media reports are anything to go by, Abe is likely to say the sales-tax increase will go ahead and unveil economic stimulus to buffer the economy from any negative impact.

"With economic data continuing to point to robust growth, there is little reason to push through legislation averting the scheduled hike," Frederic Neumann, co-head of Asian economics research at HSBC (London Stock Exchange: HSBA-GB), said in a note.

"Sticking to the plan should be a positive, demonstrating a willingness to rein in a glaring budget deficit over time. (Also) watch out for is a supplementary budget to help offset the drag from higher taxes," he added.

(Read more: Japan`s Abe to rule on sales tax rise: Will he, won`t he? )

The Bank of Japan is not expected to make any significant changes to its monetary policy when it meets.

No change from RBA?

The Reserve Bank of Australia, meanwhile, is scheduled to hold a monetary policy meeting on Tuesday and is expected to keep its key interest rates steady at a record low of 2.50 percent.

Analysts said they would watch the central bank`s statement closely amid speculation that a cycle of monetary easing is nearing an end.

The final reading of the China HSBC purchasing managers index (PMI) for September, published on Monday, came in at 50.2. That was significantly below the flash estimate of 51.2, but a touch higher than the 50.1 reading for August.

The official PMI numbers are due out on Tuesday.

"The consensus forecast, a bounce to 51.6 from 51.0, would put

Other Asian economic data due this week include the latest inflation numbers from South Korea, Indonesia, Thailand and the Philippines.

The Indian PMI data for September is also scheduled for release this week.

China starts an extended holiday period this week. National Day falls on Tuesday, October 1, which marks a week-long holiday known as Golden Week and is a key period for travel.

-By CNBC.Com`s Dhara Ranasinghe; Follow her on Twitter @DharaCNBC

Copyright 2011 cnbc.com

First Published:Sept 30, 2013 9:27 AM IST