TOKYO (AFX-ASIA) - The dollar was rangebound in midafternoon trade, with investors sidelined ahead of the release later today of the US NAPM report and tomorrow's non-farm payroll data, dealers said. Bank of Yokohama foreign exchange assistant manager Hiroshi Ishihara said if the NAPM and non-farm payroll data confirm the "moderate" deterioration of the US economy in line with the third-quarter GDP data, the dollar is expected to re-test upside resistance. According to the Commerce Department overnight, the US economy contracted at a 0.4 pct annual rate in the third quarter, the first decline since the third quarter of 1993 and the largest decline since the first quarter of 1991, when the economy was last in recession. But the GDP figure was better than the average forecast by Wall Street economists of a 1.3 pct contraction. "If you compare economic fundamentals in Japan and the US, you can immediately tell Japan is already in a much more inferior condition, and the situation could worsen further given the deterioration of the labour market condition," Ishihara said. According to the Ministry of Public Management, Home Affairs and Telecommunications, Japan's unemployment rose to a new high of 5.3 pct in September. "The deepening economic problem may increase political incentives to offer extra budget spending, which could then threaten the rating status of JGBs," Ishihara said. "Given such risk, local institutional investors may be inclined to buy US treasuries further, thereby pressuring the yen." Ishihara, however, said whether the dollar can confidently top the 123.00 yen level remains to be seen, as the most recent test of that level was a failure. "If such test is successful, investors may (next) test the 125.00 yen level," he said. The euro was firmer on short-covering in the run-up to US data releases but the upside resistance was strong amid concerns over emerging evidence of a deterioration in eurozone economic activity, dealers said. Bank of Yokohama's Ishihara pointed to the risk of a sharp appreciation in the euro related to the economic problems. "If economic problems deepen, European firms may opt to finance their debt by selling offshore assets, which should fuel strong upward momentum for the euro, just like Japan experienced in the 1990s," he said.