Tokyo: The Nikkei average rose on Wednesday after US stocks rallied on speculation of more easing by the Federal Reserve, and shrugged off Moody's cut in Japan's sovereign debt rating.
Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3 on Wednesday, blaming large budget deficits and a buildup of debt since the 2009 global recession.
"It's been a while since Japan lost its triple A status, so it is unlikely that Japan's interest rates will rise sharply," said Fumiyuki Takahashi, managing director at Barclays Capital, adding that stock market investors were shrugging off the downgrade.
The benchmark Nikkei rose 0.9 per cent to 8,814.89, while the broader Topix gained 1.1 per cent to 758.86.
On Tuesday, US stocks surged 3 per cent on speculation that Federal Reserve Chairman Ben Bernanke will signal new help for the economy this week.
Bernanke's speech on August 26 at the central bank's annual gathering in Jackson Hole, Wyoming, remains a key focus for investors, as they look for clues on any further US easing.
The meeting is widely expected to end with a controversial decision to buy hundreds of billions of dollars in US government debt to try to foster a stronger recovery.
Barclays' Takahashi said investors will likely gradually take fundamentals into consideration, after panic selling of Japanese stocks dented the Tokyo market due to US debt worries earlier this month.
Moody's had warned in May that it might downgrade Japan's Aa2 rating due to heightened concerns about its faltering growth prospects and a weak policy response to deal with bulging public debt, now twice the size of its $5 trillion economy.
"Stock market investors had somewhat expected that it could happen because Moody's had warned it might downgrade Japan's sovereign debt earlier," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Unpopular Prime Minister Naoto Kan confirmed on Tuesday he would step down as head of the ruling party within the week.
"We have major developments on the political front, and while most people in the market believe (former foreign minister Seiji) Maehara is very likely to win the (ruling party leadership) election, a swift policy response on debt problems is unlikely to come out soon," said Fujito.
Oil-related stocks outperformed, with Inpex rising 3.0 per cent to 483,500 yen and Japan Petroleum Exploration soaring 3.0 per cent to 3,090 yen after oil rose on Tuesday on views that the Federal Reserve might indicate fresh stimulus measures later this week, with oil also drawing support from fighting in Libya and disrupted Nigerian exports.
Shares of Mitsubishi UFJ Financial Group shed 0.6 per cent after the lender lost $1.8 billion from its common stock investment in Morgan Stanley so far, at least on paper, according to a regulatory filing on Tuesday.
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