Dollar-yen breaks above 115, what next?

John Phillips | Digital Editor for CNBC.com

The dollar-yen broke above the 115 level for the first time in seven years on Thursday.

Active U.S. dollar buying pushed the pair as high as 115.40 in the Asian trading session, according to market participants.

The Bank of Japan's (BoJ) second round of monetary easing, announced last Friday, has ignited a powerful rally in dollar-yen, which is up over 9 percent year to date.

Despite the rapid rise, analysts believe the rally is far from over.

"The fact that the easing move on Friday was a surprise provides the market with some scope to 'chase' as USD/JPY rises to reflect the policy surprise, and any pull-back is likely to be shallow as market participants use the opportunity to 'buy the dip'," Fiona Lake strategist at Goldman Sachs wrote in a note late Wednesday.

Read MoreNext stop for dollar-yen: 120?

The bank, which has a target of 125 by end-2016, expects the yen will continue to weaken against the greenback as a function of diverging monetary policies and likely deterioration in Japan's external balance as the Government Pension Investment Fund (GPIF) buys more external assets.

GPIF, the world's largest pension fund, last week announced new asset allocation targets. Under the new allocation guidelines, Japanese stocks and foreign stocks will account for 25 percent of the fund's holdings, up from 12 percent each previously. The fund will put 35 percent of its money in domestic bonds, down from 60 percent, while the ratio for overseas bonds will rise to 15 percent from 11 percent.

Read MoreUS will benefit most from Japan's pension fund reform

Nomura expects swifter gains in the dollar-yen, forecasting 121 by end-June 2015 and 125 by end-December.

"USD/JPY has already reacted very positively to the two policy announcements, but we still see upside risks for USD/JPY, both in the short and medium term," Yujiro Goto, foreign-exchange strategist at Nomura wrote in a note this week.