A wave of disappointing economic indicators sent investors ditching the greenback beforehand amid sentiments the Federal Reserve will keep monetary stimulus measures such as its monthly USD85 billion bond-buying program in place for longer than once anticipated.
Monetary stimulus tools tend to weaken the greenback to spur recovery.
Better-than-expected machinery data out of Japan bolstered the yen somewhat and curbed the dollar's advance.
In Asian trading on Friday, USD/JPY was trading at 102.33, up 0.07%, up from a session low of 102.08 and off a high of 102.38.
The pair was likely to find resistance at 102.77, Wednesday's high, and support at 101.27, Tuesday's low.
The Federal Reserve Bank of Philadelphia reported earlier that its manufacturing index fell to -5.2 in May from 1.3 in April.
Analysts were expecting the index to improve to a reading of 2.4 in May.
Meanwhile, the Department of Labor said earlier that the number of individuals filing for initial unemployment assistance in the U.S. rose by 32,000 to 360,000 last week, well above expectations for an increase of 2,000 to 330,000.
Soft inflation data spooked investors as well.
The country's consumer price index fell 0.4% in April from March, worse than expectations for a 0.2% decline, down for the second consecutive month.
Year-on-year inflation rates in the U.S. came to 1.1%, just shy of market expectations for a 1.3% reading and well below the Federal Reserve's 2% target.
Thursday's data came in wake of soft industrial output and producer-price reports released on Wednesday.
The dollar, meanwhile, gained steam after Federal Reserve Bank of San Francisco President John Williams suggested earlier that despite disappointing economic indicators, monetary authorities may begin to scale back the program later this year.
Philadelphia Fed President Charles Plosser, a known inflation hawk, added separately that the Fed should even consider scaling back the program next month.
The yen, however, saw support of its own on better-than-expected data at home.
In a report, the Economic and Social Research Institute said that Japan’s core machinery orders rose 14.2% in March, the largest monthly pickup in eight years.
Analysts had expected Japan’s core machinery orders to rise 2.8% in March.
The yen, meanwhile, was up against the pound and up against the euro, with GBP/JPY down 0.04% and trading at 156.07 and EUR/JPY trading down 0.02% at 131.71.
On Friday, the U.S. will release preliminary data from the University of Michigan on consumer sentiment and inflation expectations.