Data from the U.S. Commodity Futures Trading Commission released last week showed that currency speculators still held a large net short position in the yen during the week ended August 1, although somewhat smaller than the levels seen a couple of weeks earlier, when their bearish bets against the yen grew to the largest since January 2014.
Traders took heart in a measure of US consumer prices that increased only slightly in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year. However, the early gains were short-lived as the New Zealand dollar tumbled to the lowest since July 18 to last trade at $0.7278.
"When you have a market like we have had this year, and it has been amazingly calm, and you introduce a major source of uncertainty, there is bound to be some reaction", said Brad McMillan, chief investment officer for Commonwealth Financial.
Nervous investors drove shares lower earlier in the week, after President Trump declared Tuesday that the USA would react with "fire and fury" to further nuclear provocations from North Korea.
At 11:03 a.m. ET (1503 GMT), the Dow Jones Industrial Average .DJI was down 110.36 points, or 0.5 percent, at 21,938.34, the S&P 500 .SPX was down 19.12 points, or 0.77 percent, at 2,454.90.
North Korea said it was completing plans to fire four intermediate - range missiles over Japan to land near the U.S. Pacific island territory of Guam. That lifted the year-on-year increase in the CPI to 1.7% from 1.6% in June.
Inflation has risen 1.7 percent over the past 12 months, suggesting that inflation pressures remain well under control.More news: Premier League Preview and Prediction: Arsenal vs Leicester City
North Korea has since threatened to launch missiles at the USA territory of Guam, and the country previously threatened "all-out war, wiping out all the strongholds of enemies, including the US mainland".
Korea's Samsung Electronics fell 2.8% Friday.
Subdued U.S. inflation has stirred doubts about the chances of another Fed interest rate hike this year, which have weighed on the dollar.
J.C. Penney sank 16.6 percent after the struggling department store chain reported quarterly results that fell short of Wall Street's expectations. The yeild on the benchmark 10-year Treasury yields fell as low as 2.197 percent overnight, their lowest level since June 28.
"Given the speculative flows positioning for possible yen repatriation, we could see the psychologically significant 109.00 level give way", Stephen Innes, head of Asia Pacific trading at OANDA, wrote in a note. Brent crude, used to price worldwide oils, gained 40 cents to $52.54 in London. Silver gained 1 cent to $17.07 an ounce. The index bounced off its lowest closing level in six months.
In Europe, the Stoxx 600 Index fell 1%. Japan was closed on a public holiday.
The benchmark USA yield on Thursday was just above 2.2 percent, at its lowest level since late June, as investors bought up Treasuries, a classic safe harbor.
It is "a bullish sign that the equity markets are rebounding somewhat on a Friday, in spite of the fact that investors will need to wait for two days to react to any geopolitical news that comes out over the weekend", said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas.