Japan Elections: How the Tokyo Index Soared While Bitcoin Came Under Pressure

On the February 8th elections for the House of Representatives, Japan’s ruling bloc secured a decisive two-thirds majority, bringing victory to Prime Minister Sanae Takaichi. This political event literally reshaped global capital flows: the Tokyo Index and Japanese stocks soared to new heights within hours, but the same process triggered a risk-off wave that severely impacted cryptocurrencies, especially Bitcoin (BTC). At the time of writing, BTC was trading around $69,810 with a daily increase of 2.58%, but it had fallen 4.64% over the week. The paradox is that short-term volatility may conceal long-term opportunities for the crypto sector.

Tokyo Index Rises: What Happened to Capital

Market reaction to Takaichi’s victory was lightning-fast. The Tokyo Index (Nikkei) hit record highs on the day the results were announced, as traders began reassessing prospects of aggressive fiscal stimulus and possible yen depreciation. Analysts estimate that such a scenario should expand Japan’s export capabilities and support domestic inflation, which has long been a goal for the Japanese economy.

However, behind the Nikkei’s rise lies a more complex asset reallocation process. As GugaOnChain analyst noted, the so-called “Takaichi trade” is not just a simple flight from American assets but a redistribution of portfolios. Japanese government bonds, ignored for decades due to microscopic yields, are once again attracting investment capital. Expectations of re-inflation amid an expanded budget increase the attractiveness of these assets. At the same time, a strong dollar, supported by interest rate divergence between the US and Japan, continues to pressure risky assets.

Why Short-Term Pressure on Bitcoin Is Inevitable

Recent statistics speak for themselves. The Bitcoin Fear and Greed Index dropped to a six-year low on February 7 — after BTC experienced a shock, falling from above $90K in late January to nearly $60K. According to CryptoQuant, Bitcoin’s price is now below its 365-day moving average, indicating weakening demand in the spot market and from institutional investors, with liquidity shrinking.

This situation is exacerbated by the global risk-off sentiment in stock markets. Over the past seven days, the Nasdaq Composite fell 5.6%, the S&P 500 declined 2.7%, and the Russell 2000 dropped 2.6%. Historically, Bitcoin tends to move in sync with US equities during risk-off periods, so investor anxiety in the stock market inevitably spills over into crypto assets.

XWIN Research warns that the coming weeks could be particularly challenging. Tighter global financial conditions, a strengthened dollar, and capital flows into Japanese bonds create the perfect storm for a correction in the crypto markets. All these factors are typical of a bearish market phase.

From Short-Term Fluctuations to Long-Term Perspectives

Nevertheless, beyond immediate market turbulence, a much more positive outlook for the crypto sector is emerging. With a two-thirds majority in parliament, Takaichi’s administration has a rare opportunity to implement deep legislative reforms. Japanese officials have previously positioned Web3 as a strategic priority in the country’s industrial policy.

Experts expect that discussions on tax reform for crypto assets and regulation of stablecoins will return to the parliamentary agenda. For the long-term development of the crypto market, this could mean an influx of institutional investors who have hesitated to enter the sector due to regulatory uncertainty.

As summarized by XWIN Research: macroeconomic factors are indeed putting short-term pressure on markets, but institutional reforms in Japan could serve as a catalyst for long-term recovery in the crypto markets. The Tokyo Index soared thanks to a set of factors, but political decisions in Tokyo may ultimately turn out to be an advantage for Bitcoin and the entire crypto sector.