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Japan’s government introduced three major tax bills to parliament on February 20, outlining the structure of tax cuts in conjunction with record spending and debt-financed deficits under Prime Minister Sanae Takaishi.
The package carries short-term risks and long-term repercussions on the Bitcoin and cryptocurrency markets.
Financial print
total Budget 2026 122.3 trillion yen ($793 billion) in spending — a record high for the second straight year — versus expected tax revenue of 83.7 trillion yen. The deficit gap will be covered by the issuance of ¥29.6 trillion of new government bonds.
The government has also introduced a tax reform bill. The bill raised the income tax threshold from 1.6 million yen to 1.78 million yen. The bill also extended the mortgage tax and eliminated the automobile purchase tax. These measures are expected to reduce national and local tax revenues by about ¥700 billion a year.
The third bill extended Japan’s deficit bond law for five years starting in 2026. Japan’s tax law technically prohibits the issuance of deficit bonds, and only allows construction bonds. But this exception has been renewed repeatedly for decades. The extension ensures that the loan structure remains legally sound.
Together, the three projects reveal a clear truth: debt service costs have exceeded 31.3 trillion yen, surpassing the 30 trillion yen threshold for the first time, while tax cuts are also reducing revenues. Japan’s national debt is already around 250% of GDP, the highest among developed countries.
Short-term risks: the BoJ’s interest rate hike and the cessation of carry trades
Cryptocurrency traders see the immediate concern as palpable. This fiscal expansion increases the pressure on the Bank of Japan (BOJ) to raise interest rates.
Former Bank of Japan board member Seiji Adachi said on February 16 that the central bank will have enough data to justify a rate hike in April. Mizuho’s co-head of global markets went further. He told Reuters that the Bank of Japan could raise rates up to three times in 2026, possibly starting in March. Markets are currently valuing the probability of a rate hike in April at around 80%.
It is well documented Model linking BOJ increases to Bitcoin sales. BTC fell about 23% after the peak of March 2024. It fell 26% after July 2024 and 31% after January 2025. This model works in the JPY performance trade. As prices rise and the yen strengthens, financial positions financed with the cheap yen are quickly closed. Cryptocurrencies absorb the shock first because of their continuous trading and ease of leverage.
BTC is currently trading near $67,000, down more than 47% from its October 2025 all-time high of $126,198. Holders of US Bitcoin funds are sitting on unrealized losses of 20% on average with the average purchase price close to $84k, and ETFs have become net sellers in 2026. Another raise from the Bank of Japan could amplify this pressure.
However, the growth of December 2025 at 0.75% was not Great effectas the market has already priced in advance, and speculative positions are currently net long on the yen – indicating that a rapid collapse scenario like what happened in August 2024 is not guaranteed.
Long-Term Signal: Sovereign Debt and the Digital Gold Narrative
The fiscal package coupled with spot interest rate risks reinforces a structural narrative that has been built around Bitcoin. Japan, the world’s most indebted advanced economy, is simultaneously cutting taxes and expanding spending, with both financed entirely by bonds.
Tokyo-listed Metaplanet expresses this thesis. The company holds more than 35,000 BTC (about $3 billion) and aims to hold 100,000 BTC by 2026, as it borrows through preferred equity instruments in the declining yen to accumulate BTC. In essence, their strategy is a kind of arbitrage on Japan’s financial path: borrow in a currency that is losing value, and buy an asset that is in limited supply.
Japanese financial expansion creates a paradox for Bitcoin. In the short term, these measures put pressure on the Bank of Japan to tighten monetary policy, threatening a speculative sale in cross-currency spreads. In the long term, the same fiscal path undermines confidence in the sustainability of sovereign debt, and strengthens BTC’s position as a hedge against the erosion of the currency’s value.
Look at the following key variables: the outcome of spring wage negotiations (shunto) in March, the Bank of Japan’s decision in April, and whether 10-year government bond yields – currently at 2.14% after retreating from January highs – resume their climb towards 3%.
