U.S. ratings agency Standard & Poor's downgraded Wednesday its credit rating for Japan from AA- to A+, but has revised its outlook for the world's third-largest economy from negative to stable.

In a statement accompanying the re-rating, S&P added that economic support for Japan's sovereign creditworthiness has continued to weaken over the past three to four years and that the government's strategy to revive economic growth and end deflation appeared unlikely to reverse deterioration in next two to three years.

Recent cabinet office data released last week showed that the Japanese economy shrank an annualized 1.2 percent in April-June, less than the initial estimate of a 1.6 percent contraction. The median market forecast was a revision to a 1.8 percent contraction.

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Nonetheless, the data is expected to keep policymakers under pressure to do more to energize the fragile recovery.

Marcel Thieliant, Japan Economist at Capital Economics, called last week's data "hardly reassuring."



"The upshot is that price pressures are unlikely to strengthen as quickly as policymakers hope, so the chances of hitting the 2 percent inflation by next summer remain slim. We stick to our view that the BoJ will step up the pace of easing at its end-October meeting."