LONDON, Dec 21 - The yen slid against the dollar for a seventh consecutive session on Friday, hitting its lowest level in more than three years, as speculation mounted that Japan would not stand in the way of a weaker currency. Fuelling such a conviction were comments from senior Finance Ministry official, Zembei Mizoguchi, that the yen's latest tumble was merely a correction from excessive strength. Japan's Finance Minister Masajuro Shiokawa, meanwhile, admitted that recent yen weakness was "not inconvenient" and reflected economic fundamentals. "Japan seems to be guiding the yen lower in an attempt to bolster exports and stock prices," said Tony Norfield, head of foreign exchange research at ABN Amro. "How far they will allow the yen to weaken is unclear, but they could be playing a dangerous game." Japan's currency has already tumbled six yen against the dollar and the euro this month as signs of deepening recession have put pressure on Japan to ease monetary policy. With interest rates already at zero and a huge pile of government debt, analysts say Japan may have little option but to accept a weaker currency in a bid to fight deflation and export its way to recovery. The dollar rose one percent on Friday to highs of 129.70 yen -- its highest level since October 1998. Technical analysts said the currency was now on track to target 129.90/130.00, the 61.8 percent retracement of the entire 45 yen fall from August 1998 to November 1999. HOW LOW CAN IT GO? While a break of the key 130 chart barrier looked only a matter of time, dealers said banks protecting options positions at 129.70 were thwarting the dollar's progress for now. Further weakness in the yen is also likely to prompt complaints from Japan's Asian trading partners, whose exporters compete in similar markets. South Korea's top foreign exchange official said on Friday that Japan's policies favouring a weak yen were not desirable, and warned Seoul was ready to take action to moderate the impact on the won. "Weak currency policies are not desirable when the entire global economy is depressed," Kim Yong-duk, deputy minister of the government's International Affairs division told . Against such a backdrop, Japan's Finance Minister Shiokawa was keen to stress that economic fundamentals were behind the yen's recent weakness and the government was not aiming to drive the yen lower. But this remark, along with a comment on the importance of stable currencies from Vice Trade Minister Katsusada Hirose, offered little support to the yen. "The market is pushing the yen lower and the Japanese authorities are endorsing the yen's weakness," said Gerard Lyons, global head of treasury research at Standard Chartered Bank. EURO SOFT VERSUS DOLLAR The euro also rose to two-year highs around 116.65 yen , but had pared its gains by 1100 GMT and was also trading at session lows against the dollar around $0.8960 . Data suggesting the decline in German inflation may have paused in December did not help the euro, but dealers said price moves were exacerbated by illiquid trading ahead of a Japanese holiday on Monday and U.S. and European Christmas holidays next week. December price data from six German states showed annual inflation rates largely steady at November levels. "It's a seasonally thin market, and the euro is being driven down by flows not fundamentals," said a currency trader at a British bank. With all the focus on the yen, the market was little moved by the resignation of Argentine president Fernando de la Rua amid the country's worst civil unrest in a decade.