By Matthew Brown and Yoshiaki Nohara March 11 (Bloomberg) -- The yen rose amid speculation China will seek to damp economic growth after inflation jumped to a 16-month high, fueling demand for the currency as a haven. Japan’s currency strengthened from a two-week low against the euro after the National Bureau of Statistics in Beijing said consumer prices increased 2.7 percent in February from a year earlier, compared with the 2.5 percent median forecast in a Bloomberg survey of 29 economists. New Zealand’s dollar fell for a second day versus the U.S. currency as the central bank signaled a slower exit from stimulus measures. “One way investors can play policy tightening in China is through a stronger yen,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London. “If tighter policy in China calls world growth into question, the yen is a beneficiary of rising risk aversion.” The yen strengthened to 123.47 per euro as of 9:11 a.m. in London from 123.62 in New York yesterday, when it fell to 124.00, the weakest since Feb. 23. Japan’s currency advanced to 90.45 per dollar from 90.52. The dollar traded at $1.3644, from $1.3657. New Zealand’s dollar dropped 0.4 percent to 69.95 U.S. cents, and declined 0.4 percent to 63.27 yen. Chinese Inflation Chinese premier Wen Jiabao aims to hold full-year inflation at about 3 percent after banks flooded the financial system with money to combat the global recession. The economy grew 10.7 percent last quarter and central bank Governor Zhou Xiaochuan said March 6 that anti-crisis policies, including the yuan’s peg to the dollar, must end “sooner or later.” Banks extended 700 billion yuan ($102.5 billion) of new loans in February, central bank data showed today. New Zealand’s dollar fell against all but one of its 16 major counterparts after Reserve Bank Governor Alan Bollard kept the nation’s benchmark interest rate at a record low and said weak consumer spending and higher bank-funding costs are slowing the recovery. “Households are still cautious with house sales and credit growth remaining subdued,” Bollard said after leaving the official cash rate at 2.5 percent. Expectations of a rate increase as early as March or April have dimmed after house prices fell in January and credit-card spending declined for a second month in February. Rate Expectations “Market expectations prior to the decision had been for a 25 basis-point hike in June and every meeting thereafter until the end of the year,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “One of those tightenings may now be priced out of the curve, weighing on the New Zealand dollar.” The Swiss franc traded at its strongest level in a year against the euro before the central bank decides whether to leave its key interest rate near zero. The franc has strengthened 1.5 percent against the 16- nation currency this year, to the highest level since the Swiss National Bank started selling the currency in March 2009 to curb its gains. The central bank will keep softening its tone on currency intervention as Switzerland’s economy gathers strength while holding its three-month Libor target rate at 0.25 percent, a Bloomberg survey of 19 analysts shows. “We do not rule out some watering down of the interventionist language, which would likely be interpreted by the market as a form of guarded approval for further euro-franc downside,” Gareth Berry, a strategist in Singapore at UBS AG, the world’s second-largest foreign-exchange trader, wrote in a note to clients today. Zloty Weakness The franc was little changed at 1.4612 per euro after appreciating to 1.4606, the strongest since March 10, 2009. It weakened 0.2 percent to 1.0721 against the dollar. The Polish zloty fell against the euro, after Deputy Central Bank Governor Piotr Wiesiolek told PAP newswire that the bank is operationally ready to intervene on the foreign-exchange market if necessary. The zloty was 0.5 percent weaker at 3.9038 per euro. Goldman Sachs Group Inc. cut its forecasts for the euro against Norway’s krone, the Swiss franc, the Swedish krona and Polish zloty, citing an “increasing focus on growth differentiation.” Strategists including London-based Thomas Stolper also lowered their three-month forecast for the pound versus the euro as U.K. election uncertainty weighs on sterling. The bank now expects the pound to appreciate to 87 pence per euro, compared with a previous call for it to trade at 84 pence in three months. Goldman Sachs left its six- and 12-month forecasts unchanged. The pound was little changed at 91.11 pence per euro and $1.4974. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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