The dollar rose against the yen through early trading on Friday but remained mired near recent low levels following data revealing an unexpected fall in US manufacturing.

The dollar was trading at 118.30 yen by 03:45GMT, up from 118.05 yen earlier on Thursday, while the euro was worth $1.263 on currency exchange markets.

The euro peaked at $1.264 on Thursday, its highest point in the last two weeks and rose from 149.20 yen to 149.50.

Dollar gains were limited with short-term operators selling on rallies
offsetting gains by Japanese investors.  

"I think what we are seeing is people revising their views on the market after the dollar failed to rise above 120 yen," Kikuko Takeda of the Bank of Tokyo-Mitsubishi UFJ.

She added that in light of widespread anticipation that the Federal Reserve will not raise rates the market lacks incentives to push the currency higher.

"Leaving aside the question of when, I think it's safe for now to think that the next action is more likely to be to lower interest rates rather than to raise them," she told Reuters.