The vicious circle of a declining yen and a plunging Tokyo stock market will be a hot topic of discussion at Saturday's meeting in Paris of the Group of 7 industrial nations, currency traders said.

The Tokyo stock market, as measured by the Nikkei average, fell 1,978.38 yen, or 6.6 percent, Monday for the second-largest drop on record as the

dollar pushed above 160 yen.The Bank of Japan sold an estimated $400 million to support the yen in Tokyo Monday, but was unable to stop the currency from weakening.

Francoise Soares-Kemp, vice president-treasury and head corporate trader at Credit Suisse in New York, said, "160 (yen to the dollar) was allegedly the worst-case scenario for the yen. People have no number now."

The Group of 7 will discuss the yen "as a problem currency," but there is little other nations can do if the Japanese continue to invest abroad, she said.

David Puth, manager of foreign exchange operations at Chemical Bank, said: ''Without a question, the yen's weakness will be a major topic of discussion at the Group of 7 meeting."

Mr. Puth said Japan's monetary policy has been "relatively loose for some time," and that this has hurt the Japanese currency as well as the stock market.

"In the immediate future, I don't see much on the horizon to reverse the yen's declining trend, other than the G-7 meeting," he said.

The Bank of Japan's dollar-selling intervention in the fiscal year ended on Friday was a record $33.2 billion, the Ministry of Finance said in a monthly report released Monday.

In March alone, the bank spent a record $7.2 billion to defend the yen, but to no avail.

Mr. Puth said he was "not sure the U.S. authorities view the yen's weakness as serious enough of a problem to warrant action here."

No one expects the Federal Reserve to ease U.S. monetary policy to help the Japanese, particularly at a time when several members of the policy- setting Federal Open Market Committee think the Fed should tighten monetary policy to fight inflation.

"They (the Japanese) say they have no friends, but this stuff can get contagious," said Ms. Soares-Kemp, referring to the disarray in Tokyo's

financial markets.

Saturday's Group of 7 meeting will produce "some announcement to try to stabilize the yen," she predicted.

Mr. Puth of Chemical Bank said foreign exchange traders will begin reducing their positions as the week progresses, so as not to be caught by surprise by anything that happens in Paris.

He said a statement by the Group of 7 finance ministers after Saturday's meeting, saying that they will continue to cooperate on currency stabilization, could be effective in propping the yen if it is "backed up by aggressive intervention."

In Monday's trading, the dollar also rose against the deutsche mark following a statement by an East German finance official urging a 1-to-1 ratio for converting ostmarks to deutsche marks.

"The Germans don't have their act together yet," Ms. Soares-Kemp said. ''There's not as much confusion here (in the United States) as over there."

The deutsche mark has held to "a real tight range" of 1.69 to 1.72 against the dollar in the last month, she noted.

"The technicians (who follow charts) say the mark could go straight up or straight down," she said. "If I had to choose, I would say the dollar would go up to 1.73 if it breaks out of this range."

The French franc also is likely to benefit from the confusion in Germany, Ms. Soares-Kemp said, noting that "France is a country with deep, rich capital markets."