Japan falls below Botswana and Estonia in league table of credit worthiness

The Japanese government reacted furiously yesterday after its credit status was cut to below that of Botswana and Estonia.

The credit ratings agency Moody's cut the status of Japan's domestic bonds by two notches to A2, its sixth-highest rating. Its currency rating was not changed. This puts the Moody's assessment of the security of Japanese debt on a par with bonds issued by, among others, the governments of Latvia, Poland and Mauritius. The agency said Japan's policies would not do enough to prevent a worsening in its debt position.

"Japan's general government indebtedness, however measured, will approach levels unprecedented in the post-war era in the developed world and Japan will be entering uncharted territory," it said.

Japan issued a swift rebuttal. "It is an unjust downgrade and we want them to review it immediately," Japan's senior financial diplomat, Haruhiko Kuroda, said.

Moody's defended its decision. "We concentrate very carefully on fundamental analytical questions and look very carefully at the quantitative measures we believe are lined up," Vincent Truglia, managing director of sovereign ratings, said.

Moody's urged Tokyo to tackle the debt problem and avoid default. Measures could include aggressive monetary expansion to stimulate growth, or a wealth tax to boost the public finances. Japan's public debt is set to rise to 140 per cent of GDP ­ 693,000bn yen (£3,800bn) ­ by next March, the highest of any developed nation. But Masajuro Shiokawa, the Finance Minister, said: "They're doing it for business. Just because they do such things we won't change our policies."

The move comes a month after Standard & Poor's cut its rating on Japanto AA-minus.

The news came as official data showed the number of jobless in Japan hit 3.75 million last month, up 270,000 on a year ago.

Gloom in Japan was matched by glee in Botswana. "For our country to be higher than Japan ­ and we look to them for aid ­ it's a bit ironic," Martinus Seboni, at Stockbrokers Botswana, said.The southern African country boasts diamond reserves but suffers from the African HIV crisis.