Moody's blamed Japan's large budget deficit and the build-up of debt since the 2009 global recession.

JGB prices moved narrowly as action by the credit rating company was within expectations. Active JGB selling was also limited after Moody's kept the rating outlook for Japan stable.

"JGBs have tended not to show any lasting reaction to ratings downgrades in the past - probably because in Japan the problem if anything is one of over-saving, which banks recycle into JGBs, which remain 'risk free assets'," said Naomi Fink, head of Japan strategy at Jeffries Japan.

September 10-year JGB futures were down 0.08 point at 142.47 from the previous day after easing to as low as 142.39.

The benchmark 10-year yield was up by 2.0 basis points to 1.030 percent, hitting its highest in a week and moving away from a nine-month low of 0.970 percent marked on Friday. The five-year yield was up 0.5 basis point at 0.310 percent .

Market participants said longer-dated JGBs were weighed by share prices. An upcoming 20-year JGB auction amid rising wariness over the ruling party's leadership and before a crucial speech by Federal Reserve Chairman Ben Bernanke on Friday was another reason to stay away from bidding, a fund manager from a Japanese asset management firm said.

"It is possible that yields will rise more by the end of the day but that would really be nothing to do with the downgrade," he added.

The 20-year yield was up 1.5 basis point at 1.835 percent, hovering in the upper end of the 1.7-1.85 percent range seen this month.

US Treasury debt prices ended lower on Tuesday as a rally on Wall Street caused traders to pare bond holdings and erased earlier gains driven by bets the Federal Reserve will launch a new stimulus plan to help a flagging economy.

The Nikkei average rose slightly on Wednesday after US stocks rallied.

Copyright Reuters, 2011