London-based Fitch-IBCA is the first rating agency to cut Japan's ratings below top grade, saying Japan now has three key features that make it a notch below the highest-rated nations.

The ratings agency acknowledged that Japan runs a huge current account trade surplus and is the world's largest creditor nation. But it said that not all of its external assets would be available should it face a sudden need for foreign exchange.

US agency Moody's Investors Service has said it has put Japan's Triple-A debt rating under review but has not announce the results. Another leading US agency Standard & Poor's has meanwhile affirmed Japan's Triple-A debt rating.

Meanwhile, confusion engulfed Japanese politics and markets today as an agreement by ruling and opposition political leaders on key financial legislation appeared to fallapart.

Preliminary talks began in an attempt to narrow the divide over Friday's basic agreement, and a senior member of ruling Liberal Democratic Party (LDP) said he was confident that differences between the parties could be overcome.

But Tokyo stock prices tumbled to fresh 12-year lows on the stark differences as to what -- if anything -- had actually been agreed.

One of the opposition leaders who reached Friday's agreement with Prime Minister, Keizo Obuchi said he wanted to meet with the premier again to confirm the content of the agreement on bills to clear the banking sector of its mountain of bad debts and stabilise the financial system.