Gold - generally regarded as a safer asset in times of uncertainty - hit its highest price for more than two months on Friday, touching $1,288.97 an ounce at one point. Japanese markets were closed for a holiday.
North Korea said on Wednesday it is "carefully examining" plans for a missile strike on the U.S. Pacific territory of Guam, just hours after U.S. President Donald Trump told the North that any threat it presented to the United States would be met with "fire and fury".
South Korea's KOSPI fell 1.8 percent to an 11½-week low, taking its losses this week to 3.2 percent.
The dollar slipped to 109.04 yen from 109.26 late Thursday.
Chinese bluechips lost 0.9 percent, while Hong Kong's Hang Seng was 1.6 percent lower.
The dollar index .DXY , which measures the USA currency against a basket of other major currencies, fell 0.14 percent.
Gains among technology companies helped snap a three-day losing streak for USA stocks Friday, though the market ended with its worst weekly loss since March.
The December gold contract was ahead $16.70 U.S. to US$1,279.30 an ounce.
Financial markets have tended to quickly shake off North Korea's periodic saber-rattling in the past, dismissing it as bluster, but tensions have lingered this year amid signs that it is making progress in its ballistic missile program and on Trump's growing frustration with Pyongyang.
"What we're seeing today is political tensions over North Korea and the United States. making people nervous", said Robert Pavlik, chief market strategist at Boston Private Wealth in NY. It is heading for a 2.5 percent drop for the week.
The Toronto Stock Exchange's S&P/TSX composite index closed down 143.08 points, or 0.94 per cent, at 15,074.25, its lowest close since July 7.
"Given the great run we've had, seems like some sort of pullback wouldn't be surprising", said Michael Baele, managing director of investments at U.S. Bank Private Wealth Management.
The yield on the benchmark 10-year Treasury fell as low as 2.197 percent, its lowest level since June 28, before inching back to 2.201 percent. The WSJ dollar index, which measures the greenback against a basket of currencies, was flat.
It is drifting towards the lows from last month against the dollar.
In terms of forex market movements, the USA currency lost significant ground relative to majors including the yen, sterling and the euro - most notably the latter one - as the news on inflation went public.
The dollar weakened after news that US producer prices unexpectedly fell in July, recording their biggest drop in almost a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase. Away from the geopolitical drama, USA inflation data is due at 1330 GMT.
In early trading, France's CAC 40 fell 1.5 percent to 5,141.37 points and Germany's DAX lost 1.2 percent to 12,144.54.
U.S. crude was down 0.9 per cent at $48.16 per barrel, on track for a weekly loss of 2.9 per cent.
Ralph Lauren gained $10.38, or 13.3 percent, to $88.53, while peer-to-peer loan company LendingClub added 99 cents, or 18.1 percent, to $6.45.