CURRENCY INTERVENTION TIMING CRUCIAL - ANALYSTS

  The dollar's recent decline, despite
  massive central bank purchases, is a forceful reminder that
  official intervention in the foreign exchanges can work only if
  it is well-timed to coincide with shifts in market fundamentals
  or sentiment, dealers and analysts said.
      Central banks may succeed in slowing a trend, but, without
  accompanying policy changes, they stand little chance of
  reversing the direction of an ever-growing global market in
  which more than 200 billion dlrs is traded every day, the
  sources said.
      "Timing and psychology are the key to successful
  intervention," said Jim O'Neill, a financial markets economist
  with Marine Midland Banks Inc. The importance of complementary
  changes in economic fundamentals was underlined yesterday when
  a change in interest rates boosted the dollar, instantly
  achieving what the central banks had tried in vain to do for a
  week through open market intervention.
      After Citibank raised its prime rate by a quarter-point to
  7-3/4 pct, the first change in the rate since last August, the
  dollar started to advance and reached a high in Tokyo of 147.50
  yen, up two yen from Tuesday's New York low.
      By contrast, monetary authorities spearheaded by the Bank
  of Japan are estimated to have bought as much as 10 billion
  dlrs in the last 10 days of March but could not prevent the
  dollar from skidding through 150 yen and plumbing a 40-year low
  Monday of 144.70 yen. Some experts worry the central banks have
  lost more than just a temporary battle to prop up the dollar.
  The market is wary of being caught wrong-footed by a central
  bank foray, but is no longer mesmerized.
      "They've lost their credibility. The market feels it can
  take on the central banks and win," said Michael Snow, head of
  treasury operations at Union Bank of Switzerland in New York.
      The relative failure of recent intervention stands in sharp
  contrast to the success that central banks scored when they
  joined forces to drive the dollar down following the September
  22, 1985, Plaza accord.
      Then, however, central banks had an easy time of it,
  because the markets and the Treasuries of the major industrial
  powers were agreed that the dollar needed to head lower to
  redress massive worldwide trade imbalances.
      Now, there is no such consensus. The market is saying that
  the dollar must fall further because the U.S. trade deficit is
  showing little sign of improvement, while Japan is resisting in
  a bid to protect its export industries.
      For its part, the United States is apparently content to
  let the dollar fall gradually further and is paying little more
  than lip service to the February Paris agreement of the Group
  of Five plus Canada to foster stability, dealers say.
      Specifically, they said the Fed's dollar-buying
  intervention has been half-hearted, designed more as a
  political gesture to Japan than to strike fear into the
  markets. "It's been pro-forma intervention," said Francoise
  Soares-Kemp, chief corporate trader at Credit Lyonnais.
      Because of this discord and the market's momentum for a
  lower dollar, analysts said intervention looks doomed to fail.
      "It's going to take a lot more than the central banks to
  hold the dollar (at these levels)," said Snow, who predicts
  another 10 to 15 pct depreciation.
      "There have to be structural changes that occur to make the
  market stop selling dollars," added "Buying six billion dollars
  in three weeks is not going to do it."
      Late last decade during the presidency of Jimmy Carter,
  when the dollar was last under heavy speculative attack,
  central banks sometimes intervened to the tune of six billion
  dlrs in a single day but still failed to stop the dollar
  falling to a record low of 1.70 marks, analysts said.
      Snow said purchases on that scale now are unlikely. "I
  don't think anybody has the stomach for it, because they saw
  the futility of it in the seventies."
      Indeed, because the market has grown in leaps and bound
  since then, intervention on an even greater scale would
  probably be needed to impress the market.
      Trading volume in London, New York and Tokyo alone last
  year averaged nearly 188 billion dlrs a day, according to a
  joint central bank study, about double the previous estimate
  made just two years earlier by the Group of Thirty private
  research group.
      There are signs that central banks, too, realize the
  futility of swimming against the tide.
      Bank of Japan sources told Reuters in Tokyo earlier this
  week that they believed the limits of currency market
  intervention are perhaps being reached and that other methods
  for bolstering the dollar, such as invoking currency swap
  agreements with other central banks, are being considered.
      "In this era of financial liberalization, it's almost
  impossible to control the flow of capital in and out of Japan,"
  one senior official in Tokyo said.
  

