(Editor's note: This article was originally published on Real Money Pro Oct. 31 at 10 a.m.)
NEW YORK (Real Money Pro) -- Aye Kuroda!
The Japanese sure know how to party.
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With one swift stroke, Bank of Japan chief Haruhiko Kuroda has made his entire nation 5% richer, judging by performance of the Nikkei. There are many implications of this move by Japan, but let's ask the one question that is probably most relevant to U.S. investors: Does this have any impact on the Federal Reserve?
Let's start by putting the move into context with the rest of the world as that is the only way to see the true impact.
The United Kingdom and the U.S. are by far the strongest economies in the world and the only two major economies where monetary policy will likely be tightened in the near future. In continental Europe and Japan, central banks are actively trying to loosen policy, and China probably is, too.
Here are four powerful cross-currents that may result from Japan's move:The dollar Will Likely Continue to Strengthen
All else being equal, this will be a retardant on U.S. inflation, as foreign imports will become cheaper. However, in the U.S., where a large percentage of spending is on non-traded services, this effect isn't as large as many assume, but it will make a difference.
There is also a material difference in expectations. Consumer perception of inflation is highly influenced by goods that are purchased frequently and where the price is highly visible.
Gasoline is a classic example, but many food staples fit that bill as well. These are the items most likely affected by dollar strength.