The yen slipped yesterday to its lowest level since July 1991 after Pakistan's decision to conduct five underground nuclear tests became the latest reason to sell the beleaguered currency. In heavy selling, the yen slid against the US dollar reaching 139.2 yen, prompting senior officials from Japan and the United States to talk down the dollar's rise. US Ambassador to Japan Thomas Foley said the US was closely watching the 'rapidly rising' US-Japan trade imbalance, and Japan's Prime Minister Ryutaro Hashimoto said recent foreign exchange movements needed to be closely monitored, while rates should move moderately and reflect economic fundamentals. 'Taking those factors into account, the [current] situation is one which requires close monitoring,' he said. The Japanese Ministry of Finance (MOF) also warned that it was preparing to take 'decisive measures' to stem the yen fall. 'I have strong concern about recent currency movements,' Japan Finance Minister Hikaru Matsunaga said. 'We have the intention to take strong measures with regard to the excessive depreciation of the yen. In any event, we will continue to monitor the situation with concern.' The comments knocked dollar-yen back slightly in early European trading to 139 yen, as some investors took fright that the MOF was signalling imminent intervention. That mood began to take hold as US trading began late last night, amid rumours that Japan's central bank, the Bank of Japan, had checked dollar-yen prices. The BOJ commands more than US$200 billion in foreign reserves, providing it with a formidable war chest to enable it to defend the yen, and investors fear being caught on the wrong end of short positions if the BOJ decides to intervene. In early US trading, the dollar had dropped to 138.55 yen. The latest downturn in the yen was prompted yesterday by Pakistan's nuclear tests and the recent Russian financial crisis, which has sent investors fleeing to the dollar because of its safe-haven status. Jane Foley, at Barclays Capital, said: 'You can link [the yen's fall] to Pakistan, the recession in Southeast Asia, or Russia . . . but if we wipe all of that away, it is still very true that Japan's fundamentals are very poor, and that justifies a weaker yen.' Yesterday, Japan revealed unemployment rose to 4.1 per cent last month - the first time since records began. US data on Thursday showed first quarter gross domestic product surged 4.8 per cent, which was taken as another reason to buy the dollar. James Shugg, at Westpac Banking Corp, said: 'The honest truth is there is no real signal coming through that the dollar's upward momentum has stopped.' Some analysts believe that the dollar will break 140 yen within weeks.