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Dollar Strengthens Against Yen as Risk Appetite Increases

The dollar rose the most in two weeks against the yen as risk appetite swelled amid a higher-than-forecast gain in U.S. industrial production and as companies’ earnings topped estimates, damping demand for safety.

Mexico’s peso rallied on the production report from the U.S., the nation’s biggest trade partner. Japan’s currency sank as central-bank Governor Haruhiko Kuroda told parliament it wasn’t appropriate to discuss an exit from stimulus now. Stocks climbed. The dollar erased a gain versus the euro as Federal Reserve Chair Janet Yellen said U.S. policy makers have a “continuing commitment” to support the economic recovery.

“It’s a pretty risk-on day,” Chris Gaffney, senior market strategist at EverBank Wealth Management in St. Louis, said in a telephone interview. “The economy is definitely heating up along with the weather, but nothing too hot that’s going to force the Fed’s hand.”

The yen depreciated 0.3 percent to 102.23 per dollar at 5 p.m. New York time. It fell as much as 0.4 percent, the biggest intraday decline since April 1. Japan’s currency dropped 0.3 percent to 141.24 per euro, while the dollar was little changed at $1.3816 versus the common currency after gaining 0.1 percent.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers was little changed at 1,010.13 after falling from 1,010.62, the highest level since April 8.

Canada’s Currency

The Canadian dollar dropped as the Bank of Canada held its benchmark interest rate at 1 percent, where it’s been since 2010, and remained neutral on the direction of its next move. The currency weakened 0.3 percent to C$1.1011 per U.S. dollar.

Canada’s currency was the biggest loser over the past six months among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes, tumbling 7.2 percent. The euro gained 2.1 percent, while the dollar declined 0.3 percent. The yen was the second-worst performer, dropping 4 percent.

Kuroda told parliament the Bank of Japan will make the utmost effort to achieve 2 percent inflation. He said ending stimulus prematurely may invite market confusion. The BOJ will expand what is already unprecedented easing by July, according to 72 percent of economists surveyed by Bloomberg. Policy makers announce their next decision on April 30.

The Nikkei newspaper reported yesterday the government will cut its economic assessment for the first time in almost a year and a half, reflecting concern about the blow to consumption from this month’s sales-tax increase.

‘Bringing Forward’

The report “immediately led to the professional community bringing forward their timeline for when the BOJ will provide more policy stimulus,” said Neil Azous, the founder of Stamford, Connecticut-based research firm Rareview Macro LLC.

The pound approached a four-year high versus the dollar as the jobless rate dropped below the 7 percent threshold that Bank of England Governor Mark Carney set as an initial guide for considering a boost in interest rates.

“The unemployment data is pretty encouraging, and we like sterling from here,” said Josh O’Byrne, a currency strategist at Citigroup Inc. in London. “This opens up the possibility that the Bank of England may need to raise interest rates sooner than the market is expecting.”

The pound advanced 0.4 percent to $1.6797 and reached $1.6818. It climbed to $1.6823 on Feb. 17, the highest level since November 2009. Sterling strengthened 0.4 percent to 82.25 pence per euro.

Chinese Growth

China’s economy expanded 7.4 percent from a year earlier, the National Bureau of Statistics said in Beijing, more than the forecast of 7.3 percent in a Bloomberg News survey.

“Chinese numbers clearly got a lot of focus, and arguably the headline number was just a little bit below expectation, that certainly helped,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said in a phone interview.

Yellen, in a speech in New York that outlined the disciplined policy framework she uses, told investors to pay attention to shortfalls in both inflation and the jobless rate for signals on the Fed’s decisions on interest rates.

“The larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained,” the central-bank chief said.

Policy makers have held the key interest-rate target in a range of zero to 0.25 percent since 2008 to support the economy.

Production Increase

Output at U.S. factories, mines and utilities climbed 0.7 percent after a revised 1.2 percent increase the prior month, Fed figures showed today in Washington. Economists surveyed by Bloomberg called for a 0.5 percent rise.

Mexico’s peso strengthened 0.3 percent to 13.0638 to the greenback.

“The correlation between the two industrial cycles is very strong,” Eduardo Suarez, a Latin America currency strategist at Bank of Nova Scotia, said by phone from Toronto of Mexico and the U.S.

The Standard & Poor’s 500 Index of U.S. stocks climbed 1.1 percent, capping its best three-day rally in two months as Yahoo! Inc. earnings topped estimates. The index gained 0.7 percent yesterday as earnings from Coca-Cola Co. and Johnson & Johnson outweighed concern about escalating conflict in Ukraine.

To contact the reporter on this story: Andrea Wong in New York at awong268@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey

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