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In this June 11, 2009, file photo a lift truck goes by containers at a wharf in Yokohama near Tokyo, Japan (Koji Sasahara)
In this June 11, 2009, file photo a lift truck goes by containers at a wharf in Yokohama near Tokyo, Japan (Koji Sasahara)

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Why Japan could see a mild double-dip recession Add to ...

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Could Japan see a double-dip? Japan could be headed for at least a mild double-dip recession, BMO Nesbitt Burns says. Industrial production in the embattled economy has declined for four months in a row, falling at an annual pace of 7.5 per cent in the third quarter.

"While much of the global economic news has been upbeat in recent days, Japan provides a sobering counterweight," said deputy chief economist Douglas Porter. "... Industrial output is a key driver for Japan's economy, and the [third-quarter]sag spells bad news indeed for GDP. We are looking for a 1-per-cent [annualized]drop, and the weak hand‐off for [the fourth quarter]points to no growth in the current quarter either."

Factories picking up Factories are picking up steam in several countries, notably areas like China and India, but also the United States, where a generally weaker U.S. dollar may be giving industry a boost.

In China, today's purchasing managers index reading is no doubt a relief to those who feared that the economy driving the global recovery was losing steam. China's PMI climbed in October to 54.7 from 53.8 in September, while India's PMI jumped to 57.2 from 55.1. The 50 mark separates expansion from contraction.

"China's latest PMIs suggest that the economic rebound has further to go," said Mark Williams, senior China economist for Capital Economics in London.

"Input prices have picked up, but manufacturers are not passing price increases on to consumers. As a result, the People's Bank will feel no pressing need to raise rates."

Today's numbers add to other readings that indicate a soft landing in China. But they also show that the fuel is domestic, which could have ramifications for other countries in the region that depend on China for their exports.

In the United States, the Institute for Supply Management's manufacturing PMI also climbed, to a five-month high of 56.9.

"Manufacturing may account for a small share of the U.S. economy but its tentacles are far-reaching, so this is very good news indeed," said BMO Nesbitt Burns senior economist Jennifer Lee.

Ms. Lee said in an interview that the weaker U.S. currency may be helping to boost the sector. The employment component of the measures inched up 1.2 points as the new orders component climbed 7.8 points for the highest reading since May.

"This was a very positive report, and it suggests that the U.S. manufacturing sector is beginning to reap the benefits of the weak dollar," added economist Eric Green of TD Securities, according to The Associated Press.

What will the week mean for the greenback? It's a key week not just for stocks, but also the U.S. dollar , given the U.S. mid-term elections tomorrow and a crucial Federal Reserve meeting a day later, when the central bank is expected to unveil a new round of stimulus.

There isn't anyone who doesn't believe the Fed will launch a fresh program of quantitative easing, which has come to be known as QE2 and, through purchases of Treasury paper, will be aimed at driving down long-term interest rates as short-term rates can't get any lower. The question is more the size and the scope. There's also the widely-watched jobs report on Friday.

Investors have generally boosted stocks and pushed down the greenback in anticipation of QE2, though concerns that the program might not be as big as hoped caused some hiccups last week.

"With President Obama's Democrats set to get a battering in tomorrow's mid-term elections, and the Federal Reserve set to embark on a further round of quantitative easing on Wednesday, the dollar doesn't appear to have a lot going for it right now and it isn't likely that Friday's October employment report will offer any comfort," said CMC Markets analyst Michael Hewson.

"It would therefore be easy to think that the U.S. dollar is set for further falls. However, having lost about 8 per cent of its value against a basket of currencies since mid-August there is a case for suggesting that this week's events could well precipitate a relief rally, especially if the Fed aren't as aggressive as the market expects on Wednesday."

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