(March 15 – 17:00 ET) – Moody’s Investors Service is reaffirming its ratings on the 16 major Japanese banks it covers, saying that outlook for the banks remains stable.

Yesterday’s move by the Fitch ratings agency to put 19 Japanese banks on ratings watch with an eye to a negative downgrade, helped precipitated a market selloff to some degree.

The majority of Japanese banks are currently assigned ratings of E+ or E, which are the lowest ratings on Moody’s financial strength rating scale.

Moody’s notes that vulnerability of the Japanese banks is not news, “the introduction of mark-to-market accounting, the recent downturn in the Japanese stock market increases the Japanese banks’ vulnerability to such external developments. However, Moody’s analysts stressed that financial difficulties such as their low economic capitalization have been long identified as generic problems for Japanese banks and are reflected in their low ratings.”

More importantly, Moody’s said, the major banks’ deposit ratings are placed in the investment grade range of low single-A to Baa, despite the system’s very weak financial fundamentals. “This indicates that the current ratings are predicated upon Moody’s strong expectation that systemic support will continue to be extended to major banking institutions, as necessary.”

Moody’s said that any future rating actions would be most likely triggered by, “a change in the agency’s expectation regarding the predictability of systemic support”. It said that it will closely monitor the Japanese regulator scene and will examine the regulators’ plans to deal with the capital requirements of Japanese banks.