The dollar eased against the Japanese yen on Friday, as traders remained wary of potential intervention following Tokyo's currency market action the previous day. The dollar slipped to 158.535 yen before recovering slightly, after a significant drop on Thursday. U.S. Treasury informed banks of potential intervention, signaling readiness for future action, with Japan's top foreign exchange diplomat noting support beyond "psychological support."

Eric Theoret of Scotiabank suggested that market sensitivity to potential intervention, especially in thin liquidity, could explain the yen's modest rise. The Bank of Japan (BOJ) maintained its short-term interest rates at 1%, as widely expected, but warned that underlying inflation might exceed its target, hinting at future rate hikes possibly as early as September.

The BOJ's slow rate hike pace has been cited as a factor in the yen's recent weakness. Thursday saw record trading volumes for yen futures and the highest spot yen volumes in a decade. South Korea also intervened in the dollar market on Thursday to support its currency, the won. These moves followed the U.S. Federal Reserve's decision to hold rates steady, impacting the dollar's performance against a basket of currencies.