Major ratings agency Moody's Investors Service downgraded Japan's sovereign debt rating by one notch Wednesday, putting fresh pressure on the country's political leaders to repair its finances.

Moody's said it was cutting Japan's government bond rating to Aa3 from Aa2, citing the "large budget deficits and the build-up in Japanese government debt since the 2009 global recession".

It is the first time since the March 11 earthquake and tsunami that a major ratings agency has downgraded Japan's sovereign debt. Moody's said the outlook was stable.

Prime Minister Naoto Kan described the downgrading as "regrettable", according to Jiji Press news agency, while Finance Minister Yoshihiko Noda defended the creditworthiness of Japan's bonds.

"I will not comment on the actions of a private rating agency. The smooth sales of Japanese government bonds at recent auctions show that confidence remains unshaken," Noda told reporters.

The yen, which hit its post-war high of 75.95 to the dollar last week, fell slightly after the Moody's action.

The dollar was changing hands at 76.70 yen in early Tokyo trade after after rising as high as 76.78, compared with 76.66 before the announcement.

"It's a short-term yen-selling factor," said Yuji Kameoka, managing director of foreign exchange at Daiwa Securities.

The rating cut alone is unlikely to weaken the yen in the long term without any sell-offs in Japanese government bonds, he said.

Noda is to hold a news conference at 0230 GMT on the Japanese government's measures to cope with the strong yen, which has been hurting the nation's exports.

The key Nikkei-225 index of the Tokyo Stock Exchange was up 0.70 percent after the first 30 minutes of trading after opening up 0.91 percent.

The downgrade puts Moody's on a par with other major ratings companies Standard & Poor's and Fitch Ratings, both of which rate Japan's sovereign debt at AA- with a negative outlook.

Moody's last changed Japan's rating in May 2009, when it raised it from Aa3.

As Japan's fiscal position worsened this year, it lowered the outlook to negative on February 22.

It announced a review for possible downgrade on May 31, voicing doubt the country's leaders would be able to contain the industrialised world's biggest debt.

The downgrade comes less than a week before Japan is to select a new prime minister to become the nation's sixth leader in five years.

Japan's debt stands at around 200 percent of its GDP, after years of pump-priming measures by governments trying in vain to arrest the economy's long decline.

A rapidly ageing population, entrenched deflation and a feeble economy have made it hard for lawmakers to curb borrowing.

Japan is set to issue more bonds later this year to help finance reconstruction from the March disaster.

-- Dow Jones Newswires contributed to this article --