TOKYO (AFX-ASIA) - The yen was rangebound against the dollar in midafternoon trade after an initial rise triggered by the release of a better-than-expected Tankan survey lost momentum, dealers said. The large manufacturers diffusion index in the latest quarterly survey came in at minus 38, with the large non-manufacturers DI at minus 22. Private economists had forecast that the large manufacturers DI would come in at a consensus minus 43, with the large non-manufacturers DI seen at minus 24. The Tankan survey, however, disappointed traders who built up long positions on the dollar yesterday following comments by Bank of Japan policy board member Noboyuki Nakahara, dealers said. Nakahara said the central bank should launch foreign bond purchases of 200 bln yen a month, as part of 'unorthodox' monetary operations aimed at staving off deflationary pressure. Deutsche Securities senior economist Chotaro Morita said the latest Tankan simply confirmed a "steady deterioration" of the economy, rather than underscoring the presence of a deflation spiral. "The fact that the DIs did not deteriorate so sharply ... may prevent the BoJ, which is increasingly becoming bearish about the economy, from immediately stepping into an 'unorthodox' monetary operation approach," he said. The BoJ is scheduled to hold a regular policy board meeting next week. Bank of Yokohama foreign exchange assistant manager Hiroshi Ishihara, however, said economic factors are not likely to drive the dollar/yen rate sharply towards either direction, adding that "the market will pay closer attention to political moves." "In particular, the market is now watching closely if there will be any political decision on the use of public funds in the recapitalisation of banks," he said. Reported comments from LDP's policy research chief Taro Aso that the economy may fall into a deflationary spiral in February or March failed to have any material impact on forex trades today, dealers said. "The dollar may need to undergo a mild correction due to the accumulation of sizeable long positions in the near-term, but it has not lost the upward bias and may reach 128 yen before the end of this year," Ishihara said. The euro was higher against the yen due to active buying after the Tankan report found a sharp reduction in year to March 2002 capital spending plans, dealers said. According to the Tankan, large manufacturers covered by the survey now plan to cut year to March capital expenditure by a combined 4.4 pct, a major turnaround from the 2.8 pct increase shown in the September survey.