Moody's downgrades Japan's debt citing 'uncertainty' over fiscal targets

Japan's debt rating slashed by one notch to A1 from Aa3

Japan's Prime Minister Shinzo Abe attends a news conference at his official residence in Tokyo November 18, 2014 (Reuters)

Credit rating agency Moody's has downgraded the Japan's debt in the wake of the Prime Minister Shinzo Abe's decision to delay an increase in sales tax.

The ratings agency said the debt rating was lowered by one notch and lowers Japan's rating to Aa3 from A1.

Its statement cited "heightened uncertainty" about the government's ability to meet its debt reduction goals and uncertainty about the timing and effectiveness of measures to boost economic growth.

Japan, the world's third-largest economy, has the heaviest debt burden among developing nations.

Abe raised the VAT sales tax in April and planned another increase next year as part of efforts to repair government finances. But the Japanese PM decided last month to delay the second tax increase after the economy slipped into recession in the third quarter.

The outlook for the rating is "stable," meaning it's unlikely to be changed in the near to medium term. A lower credit rating can increase borrowing costs for governments in overseas markets. However, most of Japan's government debt is owned by local banks and funds.

Additional reporting PA