"For the moment, the US fiscal cliff seems to be a dominant theme for the market," said Katsunori Kitakura, associate general manager of market-making at Sumitomo Mitsui Trust Bank.
US House Speaker John Boehner, the top Republican in Congress, voiced optimism that Republicans could broker a deal with the White House to avert a fiscal crisis, even though he repeated his opposition to raising income tax rates on high earners.
President Barack Obama said on Wednesday he hoped to reach an agreement with Congress before Christmas.
Investors fear the planned tax increases and spending cuts due to start at the beginning of next year totalling about $600 billion could tip the world's biggest economy into recession and depress the global economic outlook. The dollar rose to around 82.15 yen, up about 0.1 percent from late US levels and off Wednesday's one-week low of 81.68 yen.
Expectations of big month-end dollar/yen bids also supported the dollar, which had been in a corrective decline after a surge to 7 1/2-month high of 82.84 last week on speculation about aggressive monetary easing in Japan after a likely government change next month.
Main opposition leader Shinzo Abe, a front-runner to become prime minister after the Dec. 16 election, has called for radical change in monetary policy, including unlimited easing, sparking a four-percent fall in the yen earlier this month.
"The market's reaction to Abe's comments is becoming smaller and smaller. Still, considering that there could be a fresh wave of yen-selling after the election, it's hard to see the dollar/yen falling much below 82 yen," said a trader at a Japanese bank.
The euro traded at $1.2942, down slightly from late US levels but still above Wednesday's low of $1.2880, helped by improved risk appetite due to revived optimism on the US fiscal cliff.
More pessimistic comments from a top Democratic lawmaker on a deal to avert the fiscal cliff on Tuesday had contributed to the fall in risk assets including the euro earlier on Wednesday.
Market players were also concerned about some elements of the latest aid deal for Greece, agreed by euro zone finance ministers and the International Monetary Fund earlier this week, especially how Greece can successfully implement its debt buy back plan by the Dec 13. deadline.
Greek Finance Minister Yannis Stournaras has so far declined to give details.
Still, the euro has one positive technical sign after its recovery from lows on Wednesday, which produced a bullish hammer pattern on the candlestick chart.
Investors anxiety from the euro zone's debt crisis has come down significantly, with the 10-year Italian bond yield falling to its lowest level since February 2011, supporting the euro.
The currency has a resistance from daily Ichimoku cloud top around $1.2994 but a break there could boost optimism on the currency and give it an impetus to rise above its four-week high of $1.3010 hit just after Greece's international lenders agreed to unblock aid funds to Greece.
Against the yen, the euro changed hands at 106.22 yen , so far flat on the day and not far from seven-month high of 107.135 yen hit on Monday.