April 7 (Bloomberg) -- Japan's foreign currency bond rating was raised by Moody's Investors Service to its top ranking after sales of yen boosted the nation's U.S. dollar reserves.

The Aaa rating affects about $30 billion of securities and covers foreign currency and euroyen debt of public-sector companies guaranteed by the government, New York-based Moody's said in a statement. Moody's left the domestic currency rating, which affects 459 trillion yen ($4.34 trillion) of debt, unchanged six levels lower.

Japan probably won't alter its policy of selling the yen to protect an export-led recovery, bolstering reserves that are already the world's largest, Moody's analyst Thomas Byrne said in an interview. The nation's yen-denominated public debt, which is approaching 144 percent of gross domestic product, may not be reduced by the economic recovery, he said.

``The Moody's upgrade is a confirmation of Japan's economic recovery story,'' said Hideo Ueki, who oversees $12 billion in Japanese equities as a chief investment officer at UBS Global Asset Management in Tokyo.

The yen pared losses after the statement. It was little changed at 105.75 to the dollar at 2:53 p.m. in Tokyo. Banking stocks including Mizuho Financial Group Inc. rose. The Topix index fell 0.4 percent to 1204.97 at 3 p.m.

Japan's foreign exchange reserves, the world's highest, rose to a record $826.6 billion in March, The Ministry of Finance said today, partly because the government has sold about 33 trillion yen of its currency in the year ended March 31.

``The continued build-up of reserves further reduces the risk associated with these government obligations,'' Moody's said in the release.

Bonds Gain

Bonds rose on expectations that economic growth isn't fast enough to change the central bank's policy of keeping interest rates at zero and pumping money into the economy through purchases of government debt.

The benchmark 1.5 percent bond due in March 2014 rose, pushing its yield down 2.5 basis points to 1.50 percent as of 2:54 p.m. in Tokyo, according to Japan Bond Trading Co., the nation's largest debt broker. Its yield fell as low as 1.495 percent. A basis point is 0.01 percentage point.

``I don't think we're going to see an upgrade anytime soon on the local currency debt,'' said Jason Rogers, a credit analyst at Barclays Capital Japan Ltd., one of 23 banks and securities companies that discuss bond sales with the Ministry of Finance.

Moody's chose not to follow Standard & Poor's, which last month changed the outlook on Japan's AA- local currency debt rating to ``stable'' from ``negative.''

Moody's lowered its domestic debt rating for Japan two levels in May 2002. The rating is two levels below Standard & Poor's. Fitch gives Japan a fourth-ranking AA-.

Exports

Japan's economy grew at a 6.4 percent annual pace in the three months to Dec. 31, the fastest pace since the nation's asset- price bubble burst in 1991. Exports accounted for about a quarter of the growth.

``The domestic recovery isn't strong enough yet to arrest the deterioration in the government domestic debt trajectory,'' Byrne said.

Prime Minister Junichiro Koizumi's government plans to sell a record 36.6 trillion yen of new bonds this fiscal year starting April 1 even is it projects economic growth of 1.8 percent, the third year of expansion. Japan's public debt is approaching 144 percent of gross domestic product.

To contact the reporter on this story: Daisuke Takato in Tokyo at dtakato@bloomberg.net

Last Updated: April 7, 2004 02:01 EDT