Probably the seal in the water pump.
One of the few problems with this engine. I think Yamaha got some bad pumps in 01 and 02. My 98 and 99 did not have this problem and the friend who currently owns them has not had a problem
Had the same thing happen to my 01 700 Deluxe.
Ask the dealer nicely if he will fix it under warranty as it is a labour intensive job. [ engine usually has to be pulled ]