DOLLAR SEEN FALLING UNLESS JAPAN SPURS ECONOMY
Underlying dollar sentiment is bearish,
and operators may push the currency to a new low unless Japan
takes steps to stimulate its economy as pledged in the Paris
accord, foreign exchange analysts polled by Reuters said here.
    "The dollar is expected to try its psychological barrier of
150.00 yen and to fall even below that level," a senior dealer
at one leading bank said.
    The dollar has eased this week, but remains stable at
around 151.50 yen. Six major industrial countries agreed at a
meeting in Paris in February to foster currency stability.
    Some dealers said the dollar may decline in the long term,
but a drastic fall is unlikely because of U.S. Fears of renewed
inflation and fears of reduced Japanese purchases of U.S.
Treasury securities, needed to finance the U.S. Deficit.
    Dealers generally doubted whether any economic package
Japan could adopt soon would be effective enough to reduce its
trade surplus significantly, and said such measures would
probably invite further U.S. Steps to weaken the dollar.
    Under the Paris accord, Tokyo promised a package of
measures after the fiscal 1987 budget was passed to boost
domestic demand, increase imports and cut its trade surplus.
    But debate on the budget has been delayed by an opposition
boycott of Parliamentary business over the proposed imposition
of a five pct sales tax, and the government has only a slim
chance of producing a meaningful economic package in the near
future, the dealers said.
    If no such steps are taken, protectionist sentiment in the
U.S. Congress will grow, putting greater downward pressure on
the dollar, they said.
    The factors affecting the U.S. Currency have not changed
since before the Paris accord, they added.
    "Underlying sentiment for the dollar remains bearish due to
a still-sluggish U.S. Economic outlook, the international debt
crisis triggered by Brazil's unilateral suspension of interest
payments on its foreign debts and the reduced clout of the
Reagan administration as a result of the Iran/Contra arms
scandal," said a senior dealer at a leading trust bank.
    "There is a possibility that the dollar may decline to
around 140.00 yen by the end of this year," said Chemical Bank
Tokyo branch vice president Yukuo Takahashi.
    But operators find it hard to push the dollar either way
for fear of possible concerted central bank intervention.
    Dealers said there were widespread rumours that the U.S.
Federal Reserve telephoned some banks in New York to ask for
quotes last Wednesday, and even intervened to sell the dollar
when it rose to 1.87 marks.
    The Bank of England also apparently sold sterling in London
when it neared 1.60 dlrs on Wednesday, they said.
    But other dealers said they doubted the efficacy of central
bank intervention, saying it may stimulate the dollar's decline
because many dealers are likely to await such dollar buying
intervention as a chance to sell dollars.
    However, First National Bank of Chicago Tokyo Branch
assistant manager Hiroshi Mochizuki said "The dollar will not
show drastic movement at least to the end of March."
    Other dealers said the U.S. Seems unwilling to see any
strong dollar swing until Japanese companies close their books
for the fiscal year ending on March 31, because a weak dollar
would give Japanese institutional investors paper losses on
their foreign holdings, which could make them lose interest in
purchases of U.S. Treasury securities.
    U.S. Monetary officials may refrain from making any
comments this month to avoid influencing rates, they said.
 REUTER
