This is so normal. He's only 4. He doesn't have a good understanding of ownership. And he's still in the wishful thinking way of thinking. He wishes the squinky was his and so it becomes his.
I'd handle it by not asking him questions. You're setting him up to lie when you do. Say, "I think that sister's squinky is in your pouch" and then take a look. You thought something was off when he left the room. Stop him and look in the pouch.
Don't ask him if the toy is his friends. Tell him you know it's his friends and take it away. Then when he sees the friend again, if it's convenient, have him give it back. Give him words to say such as, "I really like your toy. I wish it were mine. Here's your toy."
If you make this into a big deal he'll continue to "lie" to you. Be empathic while teaching. At this age, he's still learning the difference between the truth and a lie. His brain is not developed enough to grasp the nuances of it. It's a matter of you repeating over and over what is the truth and how he's to behave. For example, you say, "I know you wish that toys was yours. But it's not. It belongs to friend. He wants his toy. Now it's time to give it back." While you're saying that you're checking his pockets. If it turns out he doesn't have it you can always apologize. That is much better than putting him on the spot and setting him up to lie.
I'm a retired police officer and I do not use interrogation methods with my daughter and grandchildren. I do use my skill to be direct. Even as a police officer I don't remember asking someone if they did something when I was pretty sure that they did it.
I was also store security for a few months. If I saw someone put something in their pocket, I would say, "I saw you put that tube of lipstick in your pocket. Give it to me."
You saw your son put the toy in his pocket. You knew the toy wasn't his. Why would you ask him anything about it? Your goal is to teach him to tell the truth so tell him the truth first. Your goal is to teach him how to handle his wishes to have someone else's belonging. Why would you punish him for having the wish. It's normal to want what someone else has. It's normal to take it at that age. What he needs is for you to teach him what to do with his normal wish. Have a consequence, yes. Giving back the toy is a logical consequence.
Expect that he will take things. Do not label him as a thief at this age. Our children will live up to the image we give them. Do tell him it's stealing. Tell him stealing is wrong. At the same time acknowledge his natural wish for something and teach him to not take the item. Tell him it's OK to want something but it is not OK to take it.
Children are not born with a conscience. They're taught to have a conscience. Your son is at the age when he's able to begin to understand how to behave. We don't want to teach our children by rote, saying, "do not steal." We need to sympathize with their impulses while showing them what to do.