The yen hit a four-year-low of 101 against the U.S. dollar on Friday, extending losses beyond the key 100-mark amid signs that Japan's bid to reflate its economy is finally leading domestic investors to look for higher yields elsewhere.
According to data from Japan's Ministry of Finance, Japanese investors became net buyers of foreign bonds in the last two weeks, buying 309.9 billion yen ($3.1 billion) in foreign funds in the week to May 4. They purchased 204.4 billion yen worth of foreign bonds in the previous week.
While the data is only for two weeks, if this trend of capital flight continues, the yen could see more downward pressure in the months ahead, say analysts.
That capital outflows data pushed the yen to a record low in early Asian trade after it broke through the psychologically-key 100 barrier overnight on strong weekly U.S. jobless claims numbers.
(Read More: Dollar Hits 4-Year High, Piercing Key 100-Yen Mark)
"It is not a coincidence that we've had the capital flows data out of Japan and the yen went to a new low against the dollar," said Ray Attrill, co-head of foreign exchange strategy at National Australia Bank.
"We only have two weeks of data showing outflows from Japan and the numbers involved are small, but they do suggest that this could be the beginning of an outflow of funds from the supertanker that is the Japanese life insurance and pension funds," he added.
Analysts have been anticipating Japanese investors to start buying foreign bonds for some time as the Bank of Japan's decision to start buying government bonds aggressively as part of a concerted bid to end two decades of deflation squeezes domestic investors such as the pension funds out of the market.
(Read More: BOJ Throws In Kitchen Sink in War With Deflation)
"What we need to see is the Japanese investors get involved in this [dollar/yen move]," Jesper Bargmann, head of G11 currencies at Royal Bank of Scotland, told CNBC Asia's "Squawk Box."
"As they [Japanese investors] get squeezed out of the bond market, they are going to seek yield elsewhere. The bulk of the 30 percent or so move in the yen so far has been from foreigners," he added.
Once Japanese investors start to look abroad, the yen could be pushed lower in the coming months, say analysts. The yen has already fallen some 26 percent against the dollar since mid-November amid expectations for aggressive monetary easing. The latest move in the currency pushed Japanese shares to their highest level in five years on Friday.
What About that U.S. Data?
U.S. weekly jobs data overnight proved to be the catalyst for dollar/yen breaking through 100, a level that had proved elusive for weeks.
(Read More: May: the Month Dollar-Yen Finally Breaks 100?)
Jobless claims data delivered a positive surprise, with 323,000 new claims. That puts the four-week average at 337,000, the lowest level since November 2007. The upbeat numbers follow last Friday's stronger-than-expected monthly jobs data.
Analysts said a combination of strong U.S. data going forward and further evidence of capital outflows out of Japan could be a powerful force that pushes the yen much lower.
"The NFP [non-farm payrolls] and weekly jobless claims were both good numbers and if we continue to see positive data, it is conceivable to see dollar/yen go to 103, 105 over the summer," Boris Schlossberg, managing director, BK Asset Management, said.
- By CNBC.Com's Dhara Ranasinghe, Follow her on Twitter: @DharaCNBC