Moodys downgrades Japans rating by a notch

Hours after the downgrade,the government announced a $100 billion credit facility to help the Japanese economy ride out a spike in the yen in recent weeks amid the global market turmoil,which has battered Japans export-led economy.

Taking into account that there is a lopsided rise in the yen,I felt that swift measures were needed, Yoshihiko Noda,the finance minister,told reporters.

Moodys Investors Service lowered Japans grade by one step to Aa3,the fourth-highest rating,the company said in a statement.

The downgrade brings Moodys rating for Japan in line with Standard & Poors,which lowered the countrys grade by one notch to AA-minus in January,the fourth highest on its scale. Moodys had put Japan on review for a downgrade in May.

The action comes after a round of downgrades by major ratings agencies of sovereign debt,and amid concern that the debt crisis in Europe could escalate. On August 5,S&P cut the sovereign debt rating of the United States for the first time in the countrys history.

Markets in Tokyo largely shrugged off the downgrade,the latest in a line of many.

Trust in Japanese government debt remains unwavering Japans finance minister,Yoshihiko Noda,told reporters after the downgrade.

Still,the move,a week before the countrys ruling party is to select a new prime minister,could put additional pressure on the incoming administration to balance budgets. The government financing of the recovery from the March 11 earthquake,tsunami and subsequent nuclear crisis is expected to reach as high as 10 trillion yen ($130 billion).

Even before the disasters,Japans debt was expected to soar to almost 220 percent of its gross domestic product next year,according to the Organisation for Economic Cooperation and Development (OECD),which would rank it as the largest debt-to-GDP ratio in the world. Japan,however,has long been able to borrow at low nominal rates because of unwavering appetite by domestic investors for government debt.

Moodys said that it was worried by large budget deficits and the buildup of government debt. Frequent change in leadership had prevented the government from pursuing long-term fiscal reform,the agency said,while the recent disasters had delayed recovery. Meanwhile,weak prospects for economic growth were also hampering efforts to curb the countrys debt burden,the agency said.

Deflation and sluggish growth has long weighed on Japans economy,eroding the countrys tax base and forcing the government to issue debt to finance its budget.

Under pressure

* Hours after the downgrade,the government announced a $100 billion credit facility to help the economy

* Move brings Moodys rating for Japan in line with Standard & Poors

* Moodys had put Japan on review for a downgrade in May

* Markets in Tokyo largely shrugged off the downgrade,the latest in a line of many

* Moodys says it is worried by large budget deficits