By Saumya Vaishampayan, MarketWatch

NEW YORK (MarketWatch) -- The dollar rose against the yen Wednesday after a better-than-expected reading on U.S. industrial production in March suggested the economic recovery is strengthening.

Industrial production in March grew 0.7%, beating forecasts of a 0.5% rise seen in a MarketWatch poll of economists. February's industrial-production gain was revised to 1.2% from an initially reported 0.7%.

"With industrial production rising at a decent pace in March, the economy is now starting to show its true colors after the weakness triggered by the bleakest of winters," said Paul Dales, a senior U.S. economist at Capital Economics, in a note.

The dollar (USDJPY) rose to Yen102.25 from Yen101.89 late Tuesday.

Federal Reserve Chairwoman Janet Yellen said Wednesday a strong economy that meets the central bank's employment and price-stability goals could be achieved by the end of 2016.

Yellen, who spoke at the Economic Club of New York, said the low level of inflation has been caused in part by factors that are likely to be temporary, such as lower prices for consumer energy and imports.

"If we think that the Fed will be seeing its goals achieved by the end of 2016, there may be a strong argument for not beginning rate normalization until then," said Michael Woolfolk, global markets strategist at BNY Mellon.

The Fed has embarked on a path to normalize monetary policy, announcing a further cut in its monthly bond purchases to $55 billion at its March meeting. At this rate, the bond purchases could wind down by the end of the year, leading to speculation about when the Federal Reserve could begin to hike interest rates. Yellen said after the March meeting there could be an approximate six-month period between the end of bond purchases and the first rate hike, an idea that has been somewhat discounted by the release of the Fed's March minutes.

"There is little hope of a prolonged cyclical rally in the U.S. dollar until we get off of zero interest rates," said Woolfolk.

Other U.S. data released Wednesday showed construction on new homes in March rose 2.8% to a seasonally adjusted annual rate of 946,000. The Fed's Beige Book is due at 2 p.m. Eastern.

The ICE dollar index (DXY), which measures the greenback against six rivals, was little-changed at 79.794 versus 79.795 late Tuesday. The WSJ Dollar Index , which pits the dollar against a wider basket of rivals, was unchanged at 72.96.

The Australian dollar (AUDUSD) rose to 93.75 from 93.57 U.S. cents late Tuesday, boosted by better-than-expected Chinese data.

China's gross domestic product growth slowed to 7.4% in the first quarter from 7.7% previously, marking the slowest growth in 18 months. China is Australia's largest trading partner.

The U.S. dollar pushed above 1.10 Canadian dollars after the Bank of Canada made no change to interest rates, as expected. In recent trade, the U.S. unit (USDCAD) rose to 1.1008 Canadian dollars from 1.0977 Canadian dollars late Tuesday. The BOC left the target for its key rate, called the overnight rate, at 1%. In the accompanying statement, the central bank noted higher energy prices and a lower exchange rate should help push CPI inflation nearer its 2% target in "the coming quarters."

The euro (EURUSD) edged up to $1.3820 from $1.3812 late Tuesday. European-Union consumer prices in March rose 0.5% from a year earlier, marking the lowest annual rate since November 2009. The tepid inflation rate is the latest to cause concern about deflation in the euro zone, which could prompt further easing from the European Central Bank.

The British pound (GBPUSD) rose to $1.6795 from $1.6723 late Tuesday. The U.K. unemployment rate was an average of 6.9% between December and February, falling from 7.1% in the prior three months. The unemployment rate is now below the Bank of England's threshold of 7%, which is one of several indicators used by the bank to determine the path of interest rates. The Bank of England said in August it wouldn't consider raising interest rates until the unemployment rate fell to 7%.

Read more on MarketWatch:

Should you sell in April and go away?

Yellen to reintroduce herself to markets

Quiz: Can you handle the new SAT?

Subscribe to WSJ: http://online.wsj.com?mod=djnwires