TOKYO (AFX-ASIA) - Credit Suisse First Boston head of credit research Yoshio Shima said Moody's decision to review its Japan rating may have more of a political than a financial impact as the opposition is liable to use it to attack the government. The agency said it may downgrade the Aa3 rating by as much as two notches, adding that deflation is exacerbating the government's serious debt problem. "The longer it takes for the government to fashion an effective policy response to deflation, the more complicated solving other economic problems becomes," Moody's said. However, CSFB's Shima said the reformist cabinet of Prime Minister Junichiro Koizumi may face increased opposition as a result of the move after a recent slump in popularity and rising opposition from conservatives. "I think in the interest rate market, many people are concerned that interest rates will rise and this (possible) downgrading is a factor," he said. However, "it won't have a big impact on interest rates because many participants in the financial markets understand that they have nothing other than government bonds that they can buy," Shima said. "So I expect more of a political impact than an economic one," he said. "The opposition parties can take that news and attack the Koizumi cabinet as the financial markets are saying no to the Koizumi cabinet," he said. Shima said the only way to tackle deflation is to increase monetary expansion, though the Bank of Japan remains resistant to such a move. "I think that what's really necessary is a change at the Bank of Japan," he said, adding that the bank should introduce some kind of inflation targeting.