The dollar slipped to a one-week low against the yen and lost ground against the euro on Thursday as investors locked in profits on the greenback's strong 2005 performance.
The yen attracted support after Bank of Japan Governor Toshihiko Fukui said the chances of a monetary policy shift will increase next year, although he added that the central bank will keep interest rates near zero after that.
"They (BOJ) are making it pretty clear that it's going to take a long time before interest rates are moved," said Tony Norfield, head of FX research at ABN Amro.
"Sure, a move lower in dollar/yen in the coming days could still occur but that just provides buying opportunities for dollar or any other currency," he added.
Analysts predicted the yen's rise would be short-lived as it remained corseted by the unattractive interest rate.
"The markets are looking for reasons to sustain further dollar gains and they're not coming up with much so people are locking in profits," said Steven Saywell, chief currency strategist at Citigroup.
"I don't think the negative yen view has changed so we see the best way to play is long euro/yen rather than dollar/yen," said Saywell.
The yen has borne the brunt of dollar strength as investors have taken advantage of near zero Japanese interest rates to borrow yen to buy higher yielding currencies - known as carry trades.
By 1220 GMT, the dollar fell half a percent to 120.45 yen, a one-week low. The dollar hit a 32-month high of 121.39 yen on Monday.
The euro remained steady against the Japanese currency at 141.83 yen.
Against the dollar the single currency was up half a percent at $1.1772, moving further away from a two-year low of $1.1638 touched last month.
The kiwi posted its biggest one-day decline versus the US dollar in 1-1/2 years on Wednesday. It extended losses on Thursday after the central bank raised interest rates to 7.25 percent but gave little indication of more tightening in store.
The New Zealand dollar was down a third of a percent against the dollar at $0.6987.