Japan's snap lower house election has delivered Prime Minister Sanae Takaichi a decisive mandate . Her ruling coalition secured a supermajority in the Lower House. It is the LDP's largest single-party result in postwar history under former Prime Minister Shinzo Abe.
While crypto regulation was not a campaign issue, the election’s outcome will shape how quickly Japan implements the most ambitious digital asset reforms undertaken by any major economy. And with bond yields at multi-decade highs, Bitcoin down roughly 45% from its October peak, and the yen under sustained pressure, the macro backdrop makes the timing of those reforms more consequential than ever.
Japan’s Macro Environment & Market Sensitivity
Japan entered this election constrained by a tightening macro triangle that has an outsized impact on global markets. A persistently weak currency, rising government bond yields, and an outsized public debt have made maneuvering difficult.
Amid mounting fiscal pressure, bond yields have climbed to multi-year highs. This raised the cost of debt for one of the most indebted governments in the developed world. These dynamics narrow the range of short‑term policy responses.
Prime Minister Sanae Takaichi initially signaled tolerance for a weaker yen as part of a growth-first approach. The markets reacted quickly, triggering a sell-off in the currency and pushing bond yields higher, ultimately forcing the Prime Minister to walk back her statement.
Still, its impact was felt both in traditional and in crypto markets globally.
Why Crypto Feels Japan’s Troubles First
Japan’s influence on crypto markets runs less through regulation and more through interest rates. For years, ultra-low Japanese yields enabled investors to borrow cheaply in yen and use that capital to buy risk assets, including Bitcoin.
Still, with rising bond yields and the Bank of Japan signalling further rate hikes in the coming months, analysts are watching to see if shifts in yields could affect the dynamics of the yen carry trade. Already, speculative short positions in the yen have fallen sharply , suggesting that investors are repricing risk assets across the board.
Digital assets often react quickly to shifts in global liquidity, including changes in Japanese interest‑rate expectations. In fact, Bitcoin is trading at its lowest levels since early 2025, but not because conviction is falling. The selloff has not been crypto-specific. Silver plunged to its worst day since 1980, gold fell sharply, and U.S. tech stocks dropped. The common thread is a global repricing of risk assets driven partly by rising yields, shrinking liquidity, and the unwinding of leveraged positions, dynamics in which Japan's bond market is playing a central role.
In that sense, crypto is reacting to Japan not as a technology story, but as a liquidity one.
Crypto Regulation is Moving, but Elections Determine How Fast
While Japan’s macro backdrop has tightened, its crypto regulatory trajectory has quietly moved in the opposite direction. Over the past several months, the country has been rapidly moving toward integrating digital assets into its heavily institutionalized financial sector.
Most recently, Finance Minister Satsuki Katayama has described 2026 as a ‘ Digital Year’, focusing on modernizing Japan’s financial architecture. This builds on earlier efforts to normalize the regulation and tax treatment of digital assets and to integrate stablecoin payment rails.
In late 2025, the Financial Services Agency announced it was preparing measures to bring crypto assets under the Financial Instruments and Exchange Act. This would reclassify crypto from a settlement instrument to an asset.
The changes would significantly cut the tax burden of holding crypto assets. Gains from crypto assets, instead of being treated as miscellaneous income, sometimes pushing marginal tax rates above 50%, would be treated as investment income. New rules would include a capital gains tax of 20%, payable on sale, and include loss carry-forward provisions
Stablecoin regulation is illustrating Japan’s desire to push forward in digital assets. Amendments to the Payment Services Act that took effect earlier established a licensed issuance regime for fiat-backed stablecoins. By late 2025, yen-denominated stablecoins had already begun operating under this framework.
Crucially, regulators are integrating crypto into Japan’s existing financial regulation, rather than treating it as a parallel system.
Why the Election Result Matters for Crypto
Japan’s influence on crypto markets is significant. Japanese investors hold tens of billions of dollars’ worth of digital assets, with more than 13 million active crypto accounts nationwide, and the country accounts for a meaningful share of global crypto market activity.
The supermajority gives Takaichi's government full legislative control of the Lower House, including the ability to override Upper House vetoes and chair all parliamentary committees. For the crypto reform agenda, this matters procedurally. A government with a clear mandate can move legislation through committee stages and plenary votes more predictably.
That said, the election result does not resolve Japan's macro constraints. The bond market adjustment is ongoing, and the yen remains under pressure. In the near term, liquidity conditions will continue to shape market behavior more than political developments.
What the election does provide is clarity. The reforms are no longer proposals awaiting political validation. The implementation timeline, while still subject to legislative procedures, faces fewer political obstacles.
In that sense, short-term macro-driven stress and longer-term institutional adoption are not mutually exclusive. Japan may contribute to volatility as global funding conditions adjust, even as it lays the groundwork for what could become the most structured and comprehensive regulatory framework for digital assets among major economies.
Further out, Japan's regulatory trajectory will shape what institutional participation in crypto looks like once that adjustment is complete. Hard questions remain about fiscal sustainability, monetary policy, and market stability, but the election has cleared one major source of uncertainty.
Sota Watanabe is CEO of Startale Group , the company that aims to achieve "Web3 For Billions" by building products like Astar, Soneium, and Startale Cloud. He is also a director of Sony Block Solutions Labs, a joint venture with Sony Group and Hakuhodo Key3, a joint venture with Hakuhodo. In addition, Watanabe is one of the directors of the Japan Blockchain Association. He was previously named to Forbes 30 Under 30 list in Asia and Japan and Newsweek’s 100 People of Japan.
