Japan Election: Short-Term Bitcoin Pressure, Long-Term Crypto Gains

The market reaction to Prime Minister Sanae Takaichi’s electoral victory was swift and pronounced. Japanese stocks, led by the Nikkei, surged to fresh all-time highs as traders priced in expectations of aggressive fiscal stimulus and a more tolerant government stance toward yen weakness. This domestic optimism, noted by market watcher Ash Crypto, reflects a bet on Japanese reflation. However, the ripple effects extended far beyond Tokyo. Analysts at XWIN Research described the outcome as bearish for Bitcoin in the near term, citing tighter global liquidity and significant capital flow shifts.

This rotation, termed the “Takaichi Trade” by GugaOnChain, is not a simple exit from U.S. assets but a strategic portfolio rebalance. A key beneficiary has been Japanese Government Bonds (JGBs), long sidelined due to ultra-low yields, which are now attracting incremental capital as fiscal expansion raises reflation expectations. This movement has coincided with a notable pullback in major U.S. equity indices. Over the past week, the Nasdaq Composite fell about 5.6%, the S&P 500 slipped by about 2.7%, and the Russell 2000 dropped close to 2.6%. A stronger U.S. dollar, driven by yen weakness and persistent interest rate gaps, has further tightened financial conditions, creating a risk-off environment.

In such risk-off phases, Bitcoin has historically moved in correlation with U.S. equities, allowing equity-led de-risking to spill directly into crypto markets. As GugaOnChain summarized, “The Takaichi Trade strengthens Japan but puts pressure on the U.S. and Bitcoin. The capital flight to JGBs and a robust dollar create an environment of inevitable adjustments.” This correlation underscores the need for investors to monitor the relationship between U.S. indexes and crypto assets closely during this period of global capital reallocation.

The current sentiment in the crypto market reflects this pressure. At the time of writing, Bitcoin was trading just below $71,000, showing a modest daily gain but down more than 6% over the past week and nearly 22% in the last month. The sense of fragility was compounded when the Bitcoin Fear and Greed Index fell to a 6-year low on February 7, following BTC’s slide from above $90,000 in late January to near $60,000. Data from CryptoQuant reinforces this bearish technical picture, showing Bitcoin trading below its 365-day moving average with weak spot and institutional demand amid tightening liquidity—all hallmarks of a bearish phase.

Beyond the immediate market turbulence, Japan’s new political landscape presents a fundamentally different long-term narrative for cryptocurrency. With a commanding two-thirds majority, Prime Minister Takaichi’s administration possesses the legislative room to pursue significant policy changes. Officials have previously framed Web3 and digital innovation as a core industrial policy focus, signaling a forward-looking approach.

Consequently, analysts anticipate that discussions around pivotal crypto reforms, which had stalled, will now resume with renewed vigor. Key areas include comprehensive crypto tax reform and the establishment of clear regulatory frameworks for stablecoins. As XWIN Research concluded, “Near-term pressure on U.S. equities and Bitcoin is macro-driven, while Japan’s institutional reforms may support crypto markets longer term.” This suggests that once the near-term capital flow adjustments and macro pressures subside, Japan could emerge as a more structured and welcoming hub for institutional crypto adoption, driven by proactive government policy.