TOKYO (REUTERS) - Japanese Prime Minister Shinzo Abe scored another small victory as the yen broke below major support of 100 to the dollar, with analysts predicting further declines over the course of the year that would underpin the export-dependent economy.
The yen fell to as low as 101.20 per dollar, down more than two percent from Thursday's high around 98.65, and the lowest level in over four and a half years.
Some market players say Japan's aggressive policy may have sparked a currency war among its trade partners as Australia and South Korea unexpectedly cut rates this week, citing their strong currencies as one of the reasons to act.
A South Korean finance ministry official said on Friday Seoul was worried about the pace of the yen's decline and was studying whether new measures were needed to lessen the impact.
But Japanese economy minister Akira Amari reiterated his position that Tokyo had no intention to manipulate currency levels.
Still, the yen seemed set to fall further.
"Now that dollar/yen has finally gotten over the psychological hurdle of 100, there will likely be more (dollar) buying by those who were sceptical of Abenomics to begin with," Mr Neal Gilbert, market strategist at GFT Forex in Grand Rapids, Michigan.
The yen's break below the key level and a still-weak outlook was underscored on Friday with data showing Japanese investors finally reversed their relentless net selling of foreign bonds.
Japanese investors bought a net total of 514 billion yen (S$6.4 billion) foreign bonds in the two weeks to last Friday, data from the Ministry of Finance showed, a sign the Bank of Japan's massive easing may be pushing them to seek higher returns abroad.
Japanese investors had been net sellers of foreign bonds in the 11 of the previous 12 weeks before that, selling 5.87 trillion yen in total, including in the two weeks that followed the BOJ's announcement on April 4 of its two-year stimulus plan to double its bonds holdings.
The unprecedented scale of the BOJ's monetary expansion sparked speculation Japanese investors could stampede into a wide range of foreign bonds, from US Treasuries to French or Belgian bonds.
While their latest foreign bond buying was relatively small, traders took the first evidence of the Japanese buying spree as another good reason to sell the yen anew.
The yen has declined more than 20 percent in the past six months as Mr Abe started pushing for aggressive monetary easing and fiscal expansion, a policy mix known as "Abenomics", to end two decades of economic stagnation.
Analysts see Abenomics as a significant force in driving the yen lower, which in turn is putting pressure on its rivals'currencies.
The Korean won is susceptible to a weaker yen because the two countries are fierce export competitors. The won has fallen more than 10 percent against the yen this year.
Mr Abe is likely to see the latest slide in the yen as yet another milestone in his push to jump start the world's third largest economy.
Indeed, in a sign that the yen's slide was feeding through to Japanese exporters, the nation's current account surplus reached its highest level in a year in March as a result of a narrowing trade gap and a boost to overseas income transferred into yen.
Yen selling gained momentum after the currency fell below the stiff support of 100, where there had been strong yen buying from Japanese exporters and option players hedging their exotic option positions.
"I wouldn't even think about shorting the dollar/yen until around 106 where there is a convergence of retracement levels and the rally may be running out of steam at that point anyway," Mr Gilbert said.
The dollar/yen has clearly risen above 99.72, the 50 percent retracement of its 2007-2011 fall, with 105.49, the 61.8 percent retracement level as its next target.