TOKYO - THE dollar slumped to 14-year lows against the yen on Thursday, prompting expressions of alarm from Japan's government as it battles to coax the world's number-two economy back to health.

Finance Minister Hirohisa Fujii said the government was being 'vigilant' and would take appropriate measures if currency rates 'move abnormally' - although traders played down prospects for official intervention.

The greenback briefly dropped to 86.28 yen, its lowest level since it traded at 84.92 yen on July 7, 1995. A stronger yen threatens the competitiveness of Japanese exporters just as the economy is slowly pulling out of a deep slump.

The dollar's fall was driven by expectations that the US Federal Reserve will maintain its ultra-low interest rates for some time, sending investors in search of other higher-yielding assets, dealers said.

The US unit also fell to a 15-month low against a basket of currencies including the euro, yen, pound and the Swiss franc. Its slide prompted gold prices to shoot up to record highs above US$1,195 an ounce.

The dollar's woes have been exacerbated since Fed minutes on Tuesday indicated no change ahead for the low-rate regime, and called the currency's recent decline 'orderly'.