The dollar nursed losses on Friday that have put it on course for steep weekly drops against major currencies, with many investors favouring the perceived safe-haven appeal of the yen amid sinking global markets.
Japanese markets were closed for a public holiday on Thursday, when the dollar fell as low as 110.985 yen, its lowest level since October 2014.
It last stood at 112.32 yen, above a session low of 111.88 but still down 0.1 percent and on track to shed nearly 4 percent for the week.
The dollar's overnight jump back above the 112-yen level led to speculation that Japanese authorities were checking currency rates, a step that often precedes intervention.
A government official declined to comment on intervention on Friday.
"Recent exchange-rate moves have been rough. We're closely watching currency market moves with a sense of urgency," the official said, on the condition of anonymity.
Japanese Finance Minister Taro Aso adopted stronger rhetoric, saying Japan would take appropriate actions as needed, and said he hopes the Group of 20 finance leaders gathering in Shanghai later this month will consider a global policy response in the wake of the recent market turmoil.
With the G20 looming, Japanese authorities might think twice before taking steps to stem their currency's strength
"I think 110 sounds terrible, for the Japanese economy," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. "But it's a tough job for them, to keep levels in dollar/yen."
The yen's recent rapid ascent followed the Bank of Japan's move to adopt negative interest rates on Jan. 29, under which banks have to pay interest on certain deposits held at the BOJ. The dollar hit a high of 121.70 yen, before risk aversion, slowing Chine se growth and falling crude oil prices sent investors into perceived safe-haven currencies.
"It now appears that 110 is the line in the sand for the central bank and while that rate seemed far away a few days ago, the currency pair came very close to testing that level last night," Kathy Lien, managing director of BK Asset Management in New York, said in a note to clients.
"Even though we are trading above that rate now, the risk of intervention is significant," she said.
One-month dollar/yen implied volatility - an indicator of how much currency movement is expected in the weeks ahead - surged to 15.9 percent on Friday, its highest since June 2013 and nearly twice as high as 8.27 percent recorded earlier this month. It was last at 15.465 percent.
Federal Reserve Chair Janet Yellen did little to help the greenback in her second day of testimony before U.S. lawmakers.
While she said she still expects the central bank to gradually hike interest rates this year as the labour market and economy continue to improve, she reiterated that policymakers were not on a "pre-set" path to return policy to "normal" given a worsening meltdown in global stock markets.
The euro edged down 0.1 percent to $1.1308 but was not far from its overnight high of $1.1377, its loftiest peak since October 2015. It was on track for a weekly gain of 1.3 percent.
The dollar index, which gauges the U.S. unit against a basket of six major currencies, inched about 0.1 percent higher to 95.666, poised for a 1.4 percent weekly loss, after skidding to a low of 95.236 overnight, its lowest since October.