The U.S. currency steadied a little and was last at 117.13 yen, in part helped by upbeat comments from Federal Reserve Chair Janet Yellen on the U.S. jobs market.
Last week, the U.S. central bank decided to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
Yellen said at a University of Baltimore commencement ceremony Monday that the U.S. has the strongest jobs market in nearly a decade, and there are indications wage growth is picking up, according to the CNBC.
The Fed also released its updated economic projections, which indicated that the central bank forecasts three rate hikes next year, while in its September projections, Fed officials expected only two rate hikes in 2017.
The yen and the Swiss franc held firm on Tuesday after two separate deadly attacks in Turkey and Germany raised security worries in the West, while the Bank of Japan's policy decision later in the day also saw buyers pile into the Japanese currency.
Traders bought back the yen also ahead of the BOJ's policy decision later in the day.
While the central bank is expected to keep its policy on hold, some players think Governor Haruhiko Kuroda could strike a more hawkish tone than before given the sharp fall in the yen since the BOJ's previous meeting.
Against many other currencies, the dollar remained supported, with the dollar's index rising back to 103.15 .DXY =USD from Monday's low of 102.52, coming within sight of its 14-year peak of 103.56 touched on Thursday.
The euro EUR= traded at $1.0401, having slipped 0.5 percent on Monday and edging near its Dec. 15 low of $1.03665, its weakest level since January 2003.
Investors were rattled after the Russian ambassador to Turkey was shot and killed as he gave a speech at an Ankara art gallery by an off-duty police officer. Anxiety deepened further when a truck plowed into a crowded Christmas market in central Berlin, killing nine people and injuring up to 50 others.
The safe-haven Swiss franc hit a six-month high against the euro, fetching 1.0680 per euro EURCHF=. The Turkish lira TRYTOM=D3 dropped a tad to 3.5310 to the dollar, but it held above its record low of 3.6000 set earlier this month.
The dollar also slipped to as low as 116.55 yen JPY= on Monday, falling more than two yens from a 10-1/2-month high of 118.66 touched on Dec 15.
Oil prices moved very little on Tuesday, with liquidity fading in the run-up to the Christmas weekend.
Brent crude futures traded at $54.93 per barrel at 2:35 p.m. ET (1935 GMT), down 28 cents from their last close.
U.S. West Texas Intermediate (WTI) crude futures were up 22 cents $52.12 a barrel on its last day as the front-month contract.
The United States expects China to return soon an underwater U.S. drone seized by a Chinese naval vessel last week, with one U.S. official telling Reuters the exchange could happen as early as Tuesday at an agreed location in the South China Sea.
Trump, who takes office on Jan. 20, waded into the dispute over the weekend, saying in a tweet: "We should tell China that we don't want the drone they stole back - let them keep it!"
However, China is deeply suspicious of any U.S. military activities in the resource-rich South China Sea, with state media and experts saying the use of the drone was likely part of U.S. surveillance efforts in the disputed waterway.
Reference: Reuters, Xinhua
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