The yen recovered on Wednesday from a fall against the dollar and a record low versus the euro after missile launches by North Korea provided only a limited distraction from interest rates.
The euro climbed to a one-month high against the US currency, boosted by speculation that the European Central Bank may signal this week that it could quicken the pace of its monetary tightening.
Pyongyang test-fired at least six missiles early on Wednesday despite repeated warnings from North Korea's neighbours and from Washington, sparking a short-lived spree of yen selling that analysts said was mainly driven by foreign investors.
"The initial reaction to the launch is over," said Toru Umemoto, chief forex strategist at Barclays Capital in Tokyo. "Stock losses have been fairly limited, so the yen selling didn't last long."
Given that the Nikkei stock average fell only 0.7 percent on the missile news, he added that the currency market's focus had returned to interest rates ahead of a widely expected rate rise by the Bank of Japan next week.
The dollar was at 114.65 yen after rising to 115.24 yen on trading platform EBS in the wee hours of the Tokyo session. The dollar had bought 114.55 yen in late London trading on Tuesday, when US markets were closed for the Independence Day holiday.
The euro was at 147.10 yen, up from around 146.65 yen in late European trade. It climbed to 147.29 yen on EBS, the highest since the single currency was launched in 1999.
The euro climbed to a one-month high of $1.2840 on EBS, after sliding as low as around $1.2770 earlier in the session. An early wave of safe-haven buying after the missile launches pushed the Swiss franc to a fresh eight-year high against the yen while gold rose by more than 1 percent to a one-month high.
If the BoJ raises rates from zero at its July 13-14 Policy Board, the hike would be the first in six years. Kyodo news agency reported that the BoJ plans to raise the overnight call rate to 0.25 percent next week.
"The market has not yet fully priced in a 25-basis-point rate increase by the BoJ," said Masafumi Yamamoto, currency strategist at Nikko Citigroup. "If the central bank really raises the overnight rate by that much, it should prompt some yen buying."
Umemoto at Barclays said that the market had already factored in a rate rise this month, and that the yen was unlikely to gain if the BOJ tightens policy. Meanwhile, the ECB is seen leaving rates on hold at a policy meeting on Thursday after it boosted rates by 25 basis points to 2.75 percent last month, but more people in the market are betting on a rate rise in August.
Data on Tuesday showed that euro zone producer prices in May rose 6.0 percent from a year earlier, the steepest increase in nearly 6 years and reinforcing expectations for further rate hikes.
Expectations for more tightening supported the euro, after the Federal Reserve last week delivered a 17th straight rate increase but signalled it may pause its two-year tightening campaign. Traders said that investors would continue to scrutinise US data for clues about whether the Fed had in fact reached the end of its cycle of credit tightening.
Shining brightly on the market's radar is the June payrolls report due on Friday.
Before that, figures for factory orders in May are due at 1400 GMT and are expected to show a 0.1 percent rise following a 1.8 percent fall in April.
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