By 0555 GMT, the dollar had gained around 0.5 percent on the day to 116.35 yen, rebounding sharply from a low of 115.56 yen struck on electronic trading platform EBS immediately after the CPI data. The euro strengthened to 139.90 yen after touching a low near 139.15 yen early in the session.
Japanese institutional investors, retail investors and importers were all good dollar buyers when the U.S. currency hit its lows, which then forced speculators to cover short positions, traders said. Japanese investors were also keen to buy the euro after the European Central Bank raised rates as expected and ECB chief Jean-Claude Trichet warned about inflation risks.
The ECB lifted rates to 2.5 percent, a three-year high, and investors see the central bank pressing on with more credit tightening. Markets are putting a roughly 30 percent chance on rates climbing to 3.25 percent by year end.
Such a series of rate increases might erode the dollar's advantage that powered its 15 percent rally against the euro and the yen last year.
The single currency dipped to $1.2025, not far from a one-month high of $1.2046 hit the previous session.
The Federal Reserve has raised rates 14 straight times to 4.5 percent, and upbeat economic data this week have reinforced expectations for the fed funds rate to climb to 5 percent by mid-year.