Moody's Investors Service Inc. may downgrade its Aa2 rating on Japanese government bonds, citing the nation's feeble economy, the rating agency said Thursday.
Moody's said it will watch the ability of the government to balance fiscal discipline and sustained economic growth, while noting that deflation is exacerbating the situation by causing the value of existing debt to rise in real terms.
"Although the structural adjustments being discussed would have important consequences, the reform process may not be able to reverse the country's deflationary tendencies," the agency said, pointing to a worldwide business slump.