Moody's stripped Japan of its AAA rating on its foreign currency debt today, but weak manufacturing and consumer sentiment edged up, keeping alive hopes the economic slide was beginning to ease.
Across the globe, European Central Bank policymaker Axel Weber said he believed the bank's efforts to boost the eurozone economy were sufficient unless conditions deteriorated markedly.
Stock markets fell in Asia and opened weak in Europe before turning mixed.
The standout market was India where the 30-share BSE index jumped 17 per cent, the biggest single-day gain in almost two decades, after the ruling coalition secured a decisive election victory.
Moody's combined its cut in Japan's largely symbolic foreign currency rating with an upgrade by a notch to domestic government bonds.
Japanese Finance Minister Kaoru Yosano said the rating hike on domestic government bonds reflected the Japanese market's ability to absorb greater issuance of such paper.
Moody's said the move would unify Japanese government debt at a new Aa2 level. It coincided with a survey of Japanese manufacturers that showed sentiment edging up from record lows, keeping alive hopes that a disastrous first quarter marked a low point for Japan's economy.
As governments from Beijing to Washington have committed trillions of dollars to kickstart their economies, growing debt and deficits have raised questions whether nations such as United States or Britain can keep their top credit grades.
“The move to lower Japan's foreign currency bond rating from Aaa opens the way for speculation about whether Moody's will take similar actions on other triple-A ratings," said Kenro Kawano, senior rates strategist at Credit Suisse in Tokyo.
Today's monthly Reuters survey of Japan's top companies followed Friday's better-than-expected machinery orders data for April and a US consumer survey showing confidence at its highest since last September's collapse of Lehman Brothers.
US industrial output fell at a slower pace in April.
However, tentative signs of life came against a backdrop of deeper-than-feared first-quarter declines in the US and euro zone economies and signs that companies around the world are still struggling with a slump in global trade and demand.
Reuters