The dollar briefly jumped against the yen in Asian trading Wednesday after North Korea launched a rocket seen by many in the international community as a disguised ballistic missile test.
The greenback rose to 82.63 yen from 82.51 yen in New York late Tuesday, while it slipped against the euro to $1.3006 from $1.3003.
But the greenback quickly settled back to 82.52 yen shortly after Pyongyang's much-criticised launch.
"The market appears to be reacting to the news, but I doubt the sustainability of the rally," Mizuho Securities forex strategist Kengo Suzuki told Dow Jones Newswires.
Regional share markets were unmoved by the news from North Korea, with almost every bourse in positive territory.
The launch comes as Japan prepares to hold weekend elections widely expected to see Prime Minister Yoshihiko Noda's government toppled by main opposition leader Shinzo Abe and his Liberal Democratic Party.
The yen has been weakening recently on speculation that Abe would follow through on vows to pressure the Bank of Japan into launching more aggressive easing measures to boost the world's third-largest economy.
Markets were also eyeing the conclusion of the US Federal Reserve's policy meeting later Wednesday, with traders betting that the central bank would launch further easing, which tends to weigh on the dollar.
The US fiscal cliff budgetary impasse was also in focus with US President Barack Obama and his Republican foes swapping offers in a bid to avert the package of tax hikes and spending cuts due to come into effect on January 1.
There are widespread fears the package would drag the world's biggest economy into a recession unless a new spending deal is reached.
In other trading Wednesday, the euro also gained on the Japanese currency at 107.35 yen from 107.28 yen, buoyed by a surge in German investor sentiment to a seven-month high.
It offered hope that Europe's top economy will dodge recession, while a successful Spanish debt auction that saw Madrid's borrowing costs drop sharply also supported the single currency.