Japan's credit rating would be reviewed if plans to double its sales tax rate are delayed further, Moody's Investors Service said on Friday, warning weak policy formation threatened efforts to curb the country's massive debt burden.

Moody's said it did not plan to change Japan's Aa3 rating with a stable outlook for now, in part because the country's current account surplus helped offset its public debt.

If there were a delay in consumption tax legislation, that would be a credit-negative event, senior vice president and regional credit officer Tom Byrne told reporters in Tokyo.

We would reassess the situation and look at the balance of factors.

The government has set a revised timetable to increase the sales tax to 8 percent in April 2014 and then 10 percent in October 2015 -- six months later than originally planned -- but passage of the bill requires opposition support and is in doubt.

The increases in the sales tax, which is currently at 5 percent, are intended to pay for welfare spending.

Even if the sales tax rate was doubled, it would not be enough to lower Japan's ratio of public debt to gross domestic product, which is the worst among industrialised nations and almost twice the size of the $5 trillion economy.

Moody's rates Japan on the same level as Standard & Poor's and Fitch, who both rate Japan AA- with a negative outlook. All three agencies put Japan three notches below the top AAA rating.

S&P said on Monday it could cut Japan's rating if the economy grew less than expected or debt grew.


Moody's Byrne said a delay in the sales tax bill could have wider implications for the economy as Prime Minister Yoshihiko Noda has not been in office long enough to craft policies to lower debt and boost the economy.

Noda's problems have been compounded by a slump in his approval ratings that has emboldened the opposition, which hopes to force an election.

However, Byrne said while public finances were weak, Japan had not reached a critical mass of negative developments that warranted a downgrade, he said.

One factor working in Japan's favour is a healthy surplus in the net foreign income balance means the country is likely to maintain its current account surplus, Byrne said.

He also said the Bank of Japan's decision to buy more government debt could reduce the incentive to tighten fiscal policy, but said increased purchases were likely to be only a temporary measure aimed at boosting liquidity.

The BOJ on February 14 increased its asset buying and lending scheme by 10 trillion yen, to 65 trillion yen, with the entire increase to be used for purchases of long-term government bonds.

(Editing by Michael Watson and John Mair)