The yen hovered below this week's one-month high on the dollar on Friday, with traders unwilling to test Japan's tolerance of a higher yen any further, while the greenback clawed back ground on the euro.
The market was nervous about the limits of Japan's patience for a potentially export damaging yen rise against the dollar, after it moved two yen higher on Thursday.
The dollar took a hit in the previous session against the euro and Swiss franc after a security alert in Europe renewed geopolitical jitters but it recovered some losses on Friday as Pakistani troops closed in on a group of militants possibly including Osama bin Laden's second in command Ayman al-Zawahiri.
"We had a pretty substantial sell-off in the dollar yesterday and that was capped by stories out of Pakistan that a high level al Qaeda operative would be captured," said Mansoor Mohi-uddin, chief currency strategist at UBS in London.
By 1235 GMT, the yen was trading at 107.18 per dollar, 0.3 percent below the previous New York close and 3/4 of a yen off Thursday's peak around 106.36. It held steady at 132.19 per euro, down from Thursday's high of 130.73.
The dollar firmed 0.4 percent on the day to $1.2336 per euro , having shed 1-1/2 cents on Thursday, and was also 0.5 percent stronger against the Swiss franc.
The data schedule for Friday is thin and analysts said that meant the market would trade on technical levels, geopolitical events and any hints of official Japanese activity, with the Bank of Japan conspicuous by its absence this week after months of yen-selling intervention.
Some traders said the dollar's downside against the yen was limited for now unless the market could take out 106.50.
Japanese Finance Minister Sadakazu Tanigaki insisted remarks he made earlier in the week about Japan acting in the markets only if necessary were nothing out of the ordinary.
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