The dollar climbed to a 12-1/2-year high against the yen on Thursday before pulling back as investors bet that U.S. interest rates will rise later this year while Japan's monetary policy remains ultra-loose.
The latest data on U.S. jobless claims and pending home sales supported expectations that the Federal Reserve is moving toward raising rates by year-end, analysts said.
"The tone in U.S. economic numbers is improving. This reminds investors U.S. rates are moving up later this year and has revived the dollar's appeal since last week," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.
The greenback gave back much of its gain in U.S. afternoon trading after Japanese Finance Minister Taro Aso said the yen's recent drop had been "rough," stirring expectations that the Bank of Japan may intervene to stem further decline in the currency.
Aso was speaking to reporters at a meeting of top finance officials from the Group of Seven (G7) nations in Dresden, Germany.
"It gave a reason for some profit-taking," said Mark McCormick, currency strategist at Credit Agricole in New York.
Read MoreBOJ's Kuroda: we're not brewing a bubble
He expected the dollar to stay on its bullish path, reaching parity with the euro and hitting 128 yen by year-end.
The greenback was last up 0.12 percent at 123.90 yen after touching 124.46 yen on the EBS trading system earlier. Year to date, the dollar has gained 3.8 percent against the yen.
Read MoreEurope unsure on elusive Greek deal
In contrast, the greenback weakened against the euro even in the absence of a deal between Greece and its lenders, although hopes persisted that the cash-strapped nation will soon secure more money to avert a default.
G7 finance ministers in Dresden discussed Greece's protracted debt negotiations, with the United States leaning on Europe to come up with a deal.
The euro was up 0.63 percent at $1.0966, erasing earlier losses tied to encouraging U.S. jobless claims and pending home sales data.
The biggest mover on other major currencies was the Australian dollar, which shed 1 percent against the greenback after disappointing Australian capital spending data prompted speculation about another rate cut next week.
Commodity currencies came under pressure across the board, with the Aussie hitting a six-week low of $0.7618 and New Zealand's dollar shedding over 1 percent to trade at $0.7130 , its weakest in over four years.
The Canadian dollar also fell to a six-week low of C$1.2538 against its U.S. counterpart.