The yen and dollar strengthened against most major counterparts on speculation China will introduce additional tightening measures to combat inflation, boosting demand for safer assets. The Japanese and U.S. currencies also advanced for a second day versus the euro as Asian stocks and commodity prices declined. New Zealand’s dollar dropped to a two-week low after a government report showed the nation had the biggest net outflow of residents in more than 10 years. South Korea’s won fell for a second day after the nation’s financial regulator and central bank said an investigation into banks’ trading of currency derivatives will be expanded. “Worries that further monetary tightening in China could choke off growth may be causing risk aversion,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp., Australia’s second-biggest lender. “Against this backdrop, the yen and the dollar are likely to be bought.” Japan’s currency rose to 119.77 per euro as of 6:35 a.m. in London from 119.99 in New York yesterday, when it climbed to 119.21, the strongest level since April 26. The dollar rose 0.1 percent to $1.4815 per euro. The yen was little changed at 80.87 per dollar from 80.94. China’s central bank said in a report yesterday that taming inflation is its highest priority, signaling more tightening is possible even after a manufacturing survey showed growth may be moderating in Asia’s biggest economy. ‘Absolute Ceiling’ “Stabilizing prices and managing inflation expectations are critical,” the People’s Bank of China said in its first- quarter monetary policy report. Bank reserve requirements have no “absolute ceiling,” the central bank said, reiterating Governor Zhou Xiaochuan’s comments of April 16. The MSCI Asia Pacific Excluding Japan Index of shares fell for a second day, losing 1.4 percent. Gold declined 0.2 percent and copper for three-month delivery fell 1.4 percent. Japan’s financial markets were shut today for a holiday. The yen has strengthened 0.3 percent in the past day, the best performer tracked by Bloomberg Correlation-Weighted Currency Indexes, on speculation that more interest-rate increases in Asia will curb growth. “Asian giants signal tightening needs may trump growth,” Sacha Tihanyi, a Hong Kong-based senior currency strategist at Scotia Capital, the investment banking unit of Bank of Nova Scotia, wrote in a note today. “The dollar has retained a mild tone of support as risk assets have taken a bit of a tumble.” The yen typically strengthens in times of political, financial and economic turmoil as Japan’s trade surplus means the nation doesn’t have to rely on overseas lenders. The dollar benefits as the world’s main reserve currency. Kiwi Weakens The so-called kiwi fell for a third day after Statistics New Zealand said permanent migrant departures exceeded arrivals by 530 in March, the most since a net 2,400 emigrants in February 2001. The exodus from New Zealand adds evidence to the government’s outlook for little to no growth after a magnitude 6.3 earthquake wrecked houses and closed businesses in Christchurch on Feb. 22. The Treasury Department said this week gross domestic product was “flat to slightly negative” in the first quarter and forecast 2011 growth will be about 1 percent. “New Zealand’s data today hasn’t really inspired positive sentiment toward the kiwi dollar with fairly weak migration numbers,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. New Zealand’s dollar slid 0.7 percent to 79.35 U.S. cents, after falling to 79.17 cents, the lowest since April 20. It fell 0.8 percent to 64.14 yen. South Korea’s Won The South Korean won weakened as the Financial Supervisory Service looked into transactions conducted by the local branches of Credit Agricole SA and ING Groep NV last week and planned to scrutinize those of Woori Bank and Standard Chartered First Bank Korea Ltd. this week. Additional probes may start in mid-May, the FSS and Bank of Korea said yesterday, without naming any targets. “The expansion of the inspection over the banks’ currency derivatives is damping demand for the won,” said Han Sung Min, a currency dealer at Busan Bank in Seoul. The won weakened 0.5 percent to 1,074.10 per dollar today, after slipping 0.3 percent yesterday. To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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