TOKYO (AFX-ASIA) - The dollar continued to ease against the yen in the midafternoon session, hit by active profit-taking due to the strong rebound of the local equity market, dealers said. The confirmation of a strong top-side resistance near the 127 yen level, where large option-linked sell orders are said to be placed, was also weighing on the currency, they said. Bank of Tokyo Mitsubishi chief analyst Koji Fukaya said the 127-128 yen level is an important threshhold for the dollar/yen trade, adding that "the dollar passed through such a purchasing parity line only once in recent years." Dealers said speculation that U.S. monetary authorities are becoming frustrated about the rapidness of the rise in the value of the dollar also weighed on the U.S. currency. However, Finance Minister Kiichi Miyazawa said today he has not heard of any U.S. officials saying that the strong-dollar policy has been changed. Bank of Tokyo Mitsubishi's Fukaya said foreign investors were also seen buying yen to cover short positions ahead of the release tomorrow of a fresh economic stimulus package by the Japanese government. "It seems that they are simply trying to hedge outright positions against any contingency risks that may stem from the package release," he said. The Yomiuri Shimbun reported this morning that the government is considering a 3-5 year time frame for eliminating bad debt from banks' balance sheets as part of a broader plan to expedite the resolution of bad debt problems in Japan. The Bank of Tokyo Mitsubishi dealer, however, said any decline of the dollar will be limited, citing likely capital outflow by Japanese institutional investors. "Just for seasonal reasons, the dollar will see an increase in demand by Japanese investors in relation to their (year to March 2002) portfolio management," he said. The euro was rangebound against the dollar due to a lack of follow-through selling in the wake of the stronger-than-expected NAPM data, dealers said. But Bank of Tokyo Mitsubishi's Fukaya said supply drag on the euro is expected to weaken gradually in line with declines in capital repatriation by U.S. institutional investors. "But, as long as structural problems surrounding the euro-zone countries (remain) a key trading item, the euro is not likely to stage a sharp rebound," he said.