TOKYO (AFX-ASIA) - The dollar was firmer in midafternoon trade on improvement in supply and demand for the US currency, reflecting continued short-covering by US hedge funds, dealers said. Nomura Securities foreign exchange manager Takashi Toyohara said steady increase in purchases of US treasuries by Japanese institutional investors is also helping improve sentiment towards the dollar. "Immediate upside target for the dollar is the 123.20 yen, which was the high after the Bank of Japan further stepped up the monetary policy at its August policy meeting," he said. "If this target if broken, then the dollar is likely to test the 125 yen level," he said. The dollar failed to make clear headway above the 123.00 yen level due to caution over the outcome of US economic indicators, including non-farm payroll data, to be released next week, dealers said. However, Nomura's Toyohara said the market may continue to disregard weak US economic data, as it did so overnight after the release of Beige book. The Federal Reserve Board said in its Beige Book survey of current economic conditions said that the US economy was weak through mid-October, as some industries rebounded from Sept 11 but others did not. "Business activity recovered quickly from some aspects of the shock (after the terrorist attacks), such as reduced air cargo capacity, but longer-term effects are more difficult to assess," the beige book said. "The market has already factored the likely negative development following the terrorist attacks, which was evidenced by the fact that the currency has already recovered the pre-attack level," Toyohara said. "Besides, bullish sentiment towards the dollar is likely to continue as long as there is hope for some economic recovery in the US thanks to multi-billion stimulus measures," he said. "In other words, the market has effectively returned to more a normal market place, which is led by fundamental play," Toyohara added. The euro was rangebound ahead of today's policy meeting of the European Central Bank, although the consensus view is that the ECB will leave interest rates unchanged today, dealers said. "As the market has already priced in the likely maintenance of the present monetary policy, the euro is not likely to suffer from sharp decline," Toyohara said. The Nomura Securities dealer said the downside for the euro is seen at 0.8850 usd and 108.50 yen.