DOLLAR EXPECTED TO FALL DESPITE INTERVENTION

  Central bank intervention in the
  foreign exchange markets succeeded in staunching the dollar's
  losses today, but senior dealers here believe the U.S. currency
  is headed for a further retreat.
      Although the intervention was widespread, dealers perceive
  that the six major industrial nations have differing levels of
  commitment to their recent accord to stabilize currencies.
      Moreover, hard economic realities hold greater sway over
  the currency market than central bank intervention and these
  argue for a further dollar decline, dealers said.
      "The market can be bigger than the central banks. And
  economic fundamentals will always come to the fore," said a
  dealer at one major U.S. bank.
      As the dollar dropped to post-World War II lows against the
  yen today foreign exchange traders said the Bank of Japan,
  Federal Reserve Board and Bank of England intervened in the
  markets on behalf of the U.S. currency.
      Reports of the authorities' actions helped the dollar
  recover to about 149.45 yen in New York this afternoon from
  the post-war low of 148.20 yen in the Far East. But it still
  failed to regain Monday's U.S. closing level of 150.00/05 yen.
      Tokyo dealers said the Bank of Japan bought one to 1.5
  billion dlrs in Tokyo today and may also have purchased dollars
  yesterday in the U.S. via the Federal Reserve.
      Meanwhile, there were strong rumors in New York that the
  Fed also bought a modest amount of dollars around 148.50 yen
  today. Talk also circulated that the Bank of England purchased
  a small amount of dollars for yen.
      The Fed's last confirmed intervention was on January 28
  when it bought 50 mln dlrs in coordination with the Bank of
  Japan. But on March 11 the Fed also was rumored to have
  signalled displeasure with a dollar surge above 1.87 marks.
      The authorities' actions appeared to back up the February
  22 Paris pact between the U.S., Japan, West Germany, Britain,
  France and Canada under which the nations agreed to cooperate
  to foster exchange rate stability around prevailing levels.
      But foreign exchange dealers were not overly impressed by
  the authorities' intervention which they said can only soften
  extreme moves in the market.
      For one thing, some dealers believed that the Fed's
  purchases were done on behalf of the Bank of Japan rather than
  for the U.S. central bank's own account, suggesting a rather  
  watered-down American commitment to the currency accord.
      The Bank of England's action also was thought to be
  completed on behalf of the Japanese central bank, reinforcing
  the market's view that Japan is the most resolute of the six
  nations in its support of the currency pact.
      "No-one doubts the Bank of Japan is serious. But the other
  two central banks seem to be making more token gestures than
  anything else," said Chris Bourdain of BankAmerica Corp.
      "I'm not convinced the intervention was concerted," said
  Earl Johnson of Harris Trust and Savings Bank in Chicago. 
  "It's a yen problem more than anything else."
      Some dealers said a rising wave of trade protectionist
  sentiment in the U.S. limits the extent to which the American
  authorities can endorse a stronger dollar against the yen.
      "The dollar's break below the key 150 yen level ties the
  Treasury's hands behind its back. The U.S. cannot intervene on
  its own account because of the strength of protectionism here,"
  said Albert Soria of Swiss Bank Corp.
      Such comments reflect the view that the currency markets
  are becoming increasingly politicized. Despite official
  denials, some traders still feel the U.S. would countenance a
  lower dollar to help trim the nation's trade deficit.
      The majority of the 170 billion dlr merchandise trade
  deficit in 1986 was with Japan.
      Indeed U.S. Treasury secretary James Baker's comment on
  Sunday that the February currency pact had not established
  dollar targets was read by the market as a signal to sell the
  U.S. currency and kicked off the latest retreat.
      "The dollar still has more room on the downside against the
  yen based on the frictions in trade and financial services. The
  currency market is becoming very political," said Natsuo Okada
  of Sumitomo Bank Ltd.
      Okada expects the dollar to trade between 148 and 150 yen
  this week but sees the chance of a drop to 140 yen by the end
  of April or early May.
      Even if West Germany and Japan succeed in stimulating their
  economies, it may not be enough to solve structural economic
  imbalances in the near future, dealers said.
      "Even if Japan and West Germany do expand this year, it
  won't be enough to help the trade situation much," said
  Bourdain of BankAmerica, who also expects the dollar to drop to
  148 yen in the next couple of days.
  

