During Asian trading, the dollar tumbled to 84.82 yen, which was the lowest level since July 1995, but has since strengthened somewhat.
In later European deals, the dollar stood at 86.53 yen compared with 86.59 yen late on Thursday in New York. The euro fell to 1.4893 dollars from 1.5019 dollars late on Thursday.
Analyst Jane Foley at online trading group Forex.com said dealers exited assets that are deemed as risky such as the euro and sought safety in the safe-haven yen.
The market is taking a breather. Volatility had soared in early hours after the risk trade headed for the exits in thinned liquidity, Foley said.
She added: It is likely to take at least a few days before the implications of the impact of a possible default from Dubai are properly digested.
For the present it seems that the market is seeing this negative news as a blow to the global recovery but not one that will push it off course.
Gold meanwhile dipped on profit-taking after hitting a record high of 1,195.13 dollars an ounce on Thursday on the back of the weak dollar.
The greenback also remained under pressure as investors continued to price in expectations that the United States is in no hurry to raise its near-zero interest rates.
US financial markets will reopen later on Friday after the Thanksgiving holiday on Thursday. World share prices tumbled for a second day on Friday on fears over global banks exposure to a potential debt crisis in Dubai, after its government issued a shock call to suspend the debt of a key state company.
Meanwhile the yens surge against the dollar added pressure on Japanese authorities to intervene in markets, something they have not done since 2004, because the stronger yen hurts exports of Japanese companies.
Breaking from his recent cautious remarks on currency movements, Finance Minister Hirohisa Fujii acknowledged that the yens rapid rise was harmful to the economy.
We will take appropriate action toward disorderly movements, he told reporters on Friday, adding that he would discuss foreign exchange with Europe and the US when needed. In London on Friday, the euro was changing hands at 1.4893 dollars against 1.5019 dollars late on Thursday, at 128.87 yen (129.84), 0.9083 pounds (0.9090) and 1.5081 Swiss francs (1.5059).
The dollar stood at 86.53 yen (86.59) and 1.0127 Swiss francs (1.0028). The pound was at 1.6394 dollars (1.6532).
On the London Bullion Market, the price of gold sank to 1,156.28 dollars an ounce from 1,182.75 dollars an ounce late on Thursday.