Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3 on Wednesday, blaming a build-up of debt since the 2009 global recession and revolving-door political leadership that has hampered effective economic strategies.
The government unveiled a $100-billion credit line for firms investing overseas, tapping its foreign reserves for a third time since the 2008 crisis, and stepped up monitoring currency positions of financial institutions in an attempt to curb the yen's strength.
Finance minister Yoshihiko Noda said he hoped the measures would reverse excessive rises in the yen that hurt Japan's
export-reliant economy. "We won't exclude any options and will take decisive action when necessary."
Japan is preparing to elect its sixth leader in five years to replace Prime Minister Naoto Kan, under fire for his handling of the response to the tsunami and subsequent radiation crisis at a crippled nuclear power plant.
The downgrade, while not out of the blue, served as another reminder of the debt burdens that nearly all of the world's major advanced economies shoulder, even as policymakers struggle to agree on ways to stimulate sub-par growth without massive new spending.
The US lost its top-tier AAA rating from Standard & Poor's earlier this month.
Moody's new rating on Japan's debt is three notches below coveted AAA status, which Tokyo lost in 1998, but is still classified as high grade. Japan is now the same level as China, which surpassed it last year to become the world's second-largest economy, and one notch below Italy and Spain.
"Over the past five years, frequent changes in (Japan's) administrations have prevented the government from implementing long-term economic and fiscal strategies into effective and durable policies," Moody's said.Analysts said the downgrade was hardly a surprise and the reaction in financial markets was muted. "I had expected that the rating cut would have taken place after the election for the leadership of the (ruling) Democratic Party of Japan," said Yuuki Sakurai, CEO and president of Fukoku Capital Management.