TOKYO (AFX-ASIA) - HSBC Securities senior economist Peter Morgan said the implications for Japanese financial markets from the Moody's downgrade are extremely limited and the reasoning given for the cut is questionable."Japan still has quite a high savings rate so that means the fiscal deficit is easily covered by domestic savings," Evans said. "Ultimately, it boils down to what the ratings mean. If it has to do with bankruptcy risk, there's not much reason. If it's more a general description of the situation there's more of a point," he said. "I naively thought ratings were a measure of the possibility of default." Meanwhile, the markets had clearly already discounted Moody's widely expected move, and so there are limited implications even for foreign interest in Japanese bonds. "Foreigners only hold around 5 pct of the market and they have actually cut their holdings in anticipation of the downgrade," Morgan said, noting this has seen them miss out on one of the best performing markets this year. "It's not clear that they would cut from here." Concerns about the Bank of International Settlement's planned introduction of a 20 pct risk weighting on holdings of single-A rated government debt from 2004 are also overblown, he contends. Domestic banks, which make up most of the market, would be given an excemption under existing plans on the assumption a government can always monetise away debt issued in its own currency. Morgan added separately in a note the suggestion that Japan should reduce its deficit could be dangerous, given the current economic situation, while noting that Japan's debt levels are not unprecedented in history. "It makes no sense for Japan to embark on tighter fiscal policy as long as the private sector is going through a large-scale debt deflation process," he said. "Moreover, Japan's debt levels are not unprecedented. For example, the UK's debt level hit almost 300 pct of GDP in the late 1940s, and was over 200 pct throughout the 1920s and 1930s," he said. "The government still holds about half of the debt, so the net debt ratio is much less, about 67 pct of GDP according to the OECD, lower than Belgium or Italy."