Credit rating agency Moody's Investor Services has downgraded Japanese sovereign debt to Aa3, from its previously held Aa2 rating.

The move was the conclusion of a review that started in May. It was prompted by the continuing large budget deficit and 'build-up' in Japanese government debt since 2009.

The rating agency claimed the devastating earthquake and tsunami in March had also hampered recovery from the 2009 global recession.

However, Moody's did give the country a 'stable' outlook based on Japanese investors' 'undiminished home bias' and preference for government bonds.

Anthony Michael, head of fixed income for Asia Pacific at Aberdeen Asset Managers, said the downgrade was 'unsurprising'.

He said, 'Indeed this downgrade is unlikely to be the last among so-called developed market countries, the majority of which to varying degrees are suffering from huge deficits.

'In contrast the credit worthiness of many of Japan's neighbours in the Asia Pacific region are likely to continue to improve over the coming years.'

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