Japan's foreign currency government bond rating was raised one level to Aaa by Moody's Investors Service because the country's official reserves are increasing. The A2 domestic debt rating was left unchanged. The Aaa rating, the highest on Moody's scale, affects about $30 billion of securities and covers foreign currency and euroyen debt of public-sector companies guaranteed by the government, New York-based Moody's said in a statement. The outlook is ``stable,'' according to Moody's.
The yen and banking stocks rose as the announcement added to evidence that Japan's economic recovery is strengthening. Standard & Poor's last month changed the outlook on Japan's AA- local currency debt rating to ``stable'' from ``negative'' because of falling bad loans and improved prospects for growth. ``The Moody's upgrade is a confirmation of Japan's economic recovery story,'' said Hideo Ueki, who oversees $12 billion in Japanese equities as a chief investment officer at UBS Global Asset Management in Tokyo. The yen gained for the first day in four against the dollar. The yen was at 105.68 to the dollar at 1:46 p.m. in Tokyo from 105.74 late yesterday in New York. The Topix index rose 0.1 percent to 1210.31, led by Mizuho Financial Group Inc. ``The continued build-up of reserves further reduces the risk associated with these government obligations,'' Moody's said in the release.
Reserves Rise
Japan's official reserves rose to a record $826.6 billion in March, The Ministry of Finance said today, partly because the government has sold about 35 trillion yen of its currency. Japan has been the world's largest holder of official reserves since October 1999. Moody's analyst Thomas Byrne said in an interview that Japan probably won't change its policy of selling the yen to protect an export-led economic recovery. Official reserves measure the amount of money a country holds in foreign currency, International Monetary Fund reserve positions, gold and other forms and are used when the government buys foreign currency or for payments for imports. Moody's kept its rating for local currency debt unchanged at A2, the sixth-highest level, because ``deflationary pressures persist, and the cyclical recovery is not yet strong enough to boost'' nominal gross domestic product or cut government debt, the release said. ///www.bloomberg.com