The yen tumbled to its lowest in more than four years against the dollar on Friday on data showing Japanese investors were buying more foreign assets, while the greenback rallied broadly as U.S. data sparked talk the Federal Reserve may scale back monetary easing.
With the Japanese currency breaching the 100-level, analysts expect the yen to fall further. Some have called for the dollar to rise to 105 yen this summer and 110 yen by the end of the year.
Exacerbating the yen's slide was the market's broad buying of the dollar on speculation the Fed will start winding down its asset purchases, or quantitative easing, after two upbeat labor market indicators—last Friday's robust non-farm payrolls report and Thursday's weekly jobless claims.
"The break of the 100-yen level unleashed the animal spirits," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
Overnight, data showed that Japanese investors turned net buyers of foreign bonds in the last two weeks. They bought 309.9 billion yen ($3.1 billion) in foreign bonds in the week through May 4 after purchasing 204.4 billion yen in the prior week, according to the Ministry of Finance.
Chandler said the report is an important signal for yen bears. "They have been selling yen partly on the expectation that this is what Japanese investors will do as they are displaced from the local bond market by the BOJ's qualitative and quantitative easing," Chandler said. "However, this had not materialized until now."
The dollar was last at 101.63 yen, up 1 percent on the day, the yen's weakest showing since October 2008.
The dollar rose to 83.44 against a basket of currencies, for a high not seen since last July. It was last at 83.12, up 0.4 percent on the day.
Traders said the yen extended falls after breaking through a reported options barrier at 101.50 yen and as stop-loss dollar buy orders were triggered above 101.55 and 101.60 yen. Another options barrier was said to lurk at 102.00 yen.
The yen has lost nearly 9 percent against the U.S. currency since the Bank of Japan announced aggressive monetary easing on April 4 and is down 15 percent so far this year. "I do see dollar/yen moving higher," said Steve Barrow, head of G10 currency research at Standard Bank, who predicts the dollar will rise to 110 yen in 12 months. But he expected the move to be "relatively slow" from here until the Fed starts to taper its quantitative easing program or Japanese inflation rises significantly.
Analysts at UBS raised their one- and three-month forecasts to 102 and 105 yen respectively, both from 95 yen previously.
Focus on G-7
The focus now shifts to the G-7 meeting in the UK on Friday, where currencies—especially the yen's weakness—could be up for discussion. Even before the break of the 100-yen level, market participants were closely monitoring Japan's efforts to reflate its economy.
Reflation is in the early stages, but the yen has already dropped nearly 32 percent against the dollar since autumn last year. And on the long-term charts, analysts at TD Securities said there doesn't seem much significant resistance for the dollar all the way up to 105 yen.
That said, G-7 officials are expected to reiterate that monetary policy tools aimed at boosting a domestic economy are acceptable even if they weakened a currency. Analysts said that could be seen as a green light for further yen selling.