Moody's raises the Japan debt rating on fiscal policy

'Moody's decision to take the unusual one-notch upgrade without a prior positive outlook or review is based on the rating agencies expectation that the government and ruling party is firmly committed to fiscal consolidation, and that although economic growth may slow this year, the Japanese economy will prove resilient to turbulence in the global economy,' Moody's said.

Moody's Investors Service also said the government will keep trying to restrain spending to reduce debt.

The increase on long-term, local-currency debt from A1 "was prompted by expectations of continued fiscal restraint and consolidation, coupled with an easing-out of the debilitating effects of deflation," senior vice president of Moody's Thomas Byrne, said in a statement. "The government and ruling party is firmly committed to fiscal consolidation."

Prime Minister Yasuo Fukuda last week reaffirmed his pledge to balance the budget by 2011 so that the government can cut the world's largest public debt. Economists say Japan has not done enough to pare its borrowings, which the Organization for Economic Cooperation and Development estimates stand at 182 percent of gross domestic product.

The increase to the fourth-highest investment grade brings Moody's assessment in line with Fitch Ratings' AA- and one notch below Standard & Poor's AA, and puts Japan on a par with Taiwan and Cyprus. Moody's raised the rating to A1 eight months ago.

Moody's assigned Japan the top Aaa rating in 1993, and since 1998 made four cuts as the nation's borrowings swelled. Japan is still the lowest among the Group of Seven industrialized nations by Moody's measurement. Within the G-7 only Italy and Japan have ratings below Aaa.