DOLLAR DROP SEEN AS TEST OF PARIS AGREEMENT
  The sharp drop in the value of the
  dollar against the yen and the mark is the first serious test
  of last month's Group of Five (G-5) plus Canada agreement to
  stabilise currencies, dealers and bank economists said.
      "The dollar will be pushed down until there is coordinated
  central bank intervention," one dealer for a German bank said,
  echoing widepread sentiment in the market.
      But opinion was divided on whether the united front forged
  in Paris still exists. Some dealers said there were growing
  signs the United States wanted the dollar to fall further.
      Despite repeated Bank of Japan intervention, the dollar
  plunged to a post-war low in Tokyo today. It was quoted as low
  as 148.40 yen in the Far East and dealers here said they
  expected the U.S. Currency to decline further.
      "The dollar is now firmly within a broad 140 to 150 yen
  range," Chase Bank AG's senior dealer Eckhart Hager said.
      Others said there were technical reasons for the sharp
  dollar drop. "Window-dressing" operations by some Japanese
  companies who were selling dollars and buying yen before the
  end of the Japanese fiscal year on March 31 were undermining
  the U.S. Currency.
      Dealers said main reason for the sell-off was not
  technical. U.S. Treasury Secretary James Baker's comment the
  Paris accord did not have fixed dollar targets was seen as a
  renewed attempt by the U.S. Administration to talk the dollar
  down.
      "Suddenly, support levels which had existed for fear of
  central bank intervention disappeared," one dealer said.
      The Bank of Japan was believed to have bought some 1.5
  billion dlrs, and this with comments by Japanese officials
  indicated Tokyo was unhappy about the plunge, dealers said.
  Bank of Japan governor Satoshi Sumita threatened central bank
  intervention if necessary.
      Japanese Finance Minister Kiichi Miyazawa said today the
  time had come for the six nations who agreed in Paris last
  month to stabilise currencies - Japan, Britain, Canada, France,
  the U.S. And West Germany - to take action in line with the
  pact.
      But the Bundesbank and other European central banks were
  not detected in the open market during the European morning.
  Opinion here was divided on when the Bundesbank would act.
      While some said the West German central bank would support
  the dollar once it fell below 1.80 marks, others said the
  Bundesbank would only intervene after a fall below 1.75 marks
  or if the decline accelerated.
      The Bundesbank last intervened on January 27, when the
  dollar threatened to fall below 1.81 marks.
      "The Japanese seem to be on their own at the moment," one
  dealer said. Others said cooperation between central banks and
  governments was easier said than done.
      Some said Baker's remarks and U.S. Trade Representative
  Clayton Yeutter's warning that the U.S. And Japan were on the
  verge of a serious trade conflict showed there was a rift.
      "It's hard to tell whether the G-6 agreement still stands," a
  dealer said. Another added, "If the Americans do not get what
  they want, they will push the dollar down, regardless of G-6."
      Citibank AG also cast doubt on the chances of success for
  the Paris agreement in its latest investment letter.
      "It is hard to see that Japan and Germany are willing or
  able to loosen fiscal policy sufficiently to offset the
  necessary U.S. Fiscal contraction," Citibank said.
      It added, "Markets should therefore be aware that 1.80 marks
  is not the lower limit for the dollar -- a rate of 1.70 marks
  or even less is expected this year."
      And London Broker Hoare Govett said in its March 1987
  economic report, "We are looking for a further, more gradual,
  fall, possibly to 1.60 marks by the end of the year."
      But opinion about whether the Paris accord was still in
  force was not universal. Some dealers said not too much should
  be read into Baker's and Yeutter's comments.
      "There is no reason to believe the Paris pact has broken
  down," a senior dealer said.