Moody's Investors Service said today it has seen no progress on a consensus between Japan's government and opposition on fiscal policy, suggesting that a sovereign debt rating downgrade was likely after it completes a review within the next three months.

Tom Byrne, Moody's senior vice president and regional credit officer, told reporters that a change in Japan's government, where prime minister Naoto Kan faces a no-confidence vote in parliament and pressure within his own ruling party to resign, would raise uncertainty about coherent policy as the country grapples with rising debt and a sluggish economy.

Moody's has placed Japan's Aa2 local and foreign currency sovereign ratings on review for a possible downgrade, citing concerns that government plans to reduce its debt burden would not be strong enough given the fiscal burden from a massive earthquake and tsunami on March 11th.

Reuters