Standard Poor's has downgraded Japan's credit rating from AA to AA-, citing Japan's worsening debt situation for the move.
The agency said it expected Japan's debt, which is already almost twice the country's annual economic output, to continue rising for about 15 years.
It added that the government lacked a coherent strategy for tackling the debt problem.
The downgrade reflects our appraisal that Japan's government debt ratios - already among the highest for rated sovereigns - will continue to rise further than we envisaged and will peak in the mid 2020s, SP said.
It forecast that the fiscal deficit - the amount by which the government's expenditure exceeds its revenues each year - would fall only modestly from an estimated 9.1% of GDP in the 2010 financial year, to 8.0% in 2013.
In addition, SP raised concerns about Japan's persistent deflation and fast-ageing population, which places a huge burden on the state through benefit payments.
The BBC reports the Bank of Japan has lowered interest rates to almost zero and injected trillions of yen into the economy in order to boost demand.
The government has also introduced a number of stimulus packages designed to boost growth by creating jobs.
However, concerns remain about the country's fragile recovery despite these measures. Consumer prices have been falling for almost two years.