Recent election results in Japan have drawn attention to the stability of its financial markets. According to NHK vote count data cited in a February 9 report, the Liberal Democratic Party secured 316 seats in the House of Representatives election held on the 8th, with the ruling coalition winning a majority. This outcome follows previous analysis highlighting "strategic adventurism by opportunistic actors in the Asia-Pacific region" as a key geopolitical risk to monitor by 2026. In a January 27 report examining shifts in Japanese asset valuation amid multipolar trends, the impact of geopolitical changes on the yen and Japanese government bonds (JGBs) was discussed. Integrating the latest election results, key points are summarized below for investor reference.
The question of whether the yen and JGBs have stabilized must be evaluated within the broader context of evolving global order. Since the start of the year, Japanese capital markets have experienced significant volatility, with both the yen and JGBs weakening and the yen's safe-haven appeal noticeably diminishing. Recent intervention and guidance by Japanese authorities have temporarily soothed market sentiment, showing signs of stabilization. However, the structural shifts underlying the movements of the yen and JGBs cannot be solely attributed to short-term economic fluctuations. Instead, they reflect a larger narrative: the global order is undergoing a profound transition from unipolarity to multipolarity, systematically reshaping the pricing logic of major global asset classes. Japanese asset volatility is a concrete manifestation of this transformation.
The historical status of the yen and JGBs as "safe-haven assets" stemmed from Japan's unique role under the U.S.-led unipolar order. Following the Cold War, Japan's geopolitical value was primarily expressed in the financial domain. As a strategic ally and capital-rich nation, Japan maintained an ultra-low interest rate environment, effectively serving as a key tool for dollar-denominated capital engaged in global arbitrage and leverage operations. Concurrently, Japan benefited from security assurances and stable capital flows within this system, enjoying a low-risk environment and relatively steady returns on overseas investments, which collectively underpinned the "safe asset" attributes of the yen and JGBs.
As the world order shifts toward multipolarity, Japan's position is becoming increasingly precarious. The relative decline of U.S. power has reduced both its capacity and willingness to project influence and resources globally. In this process, Japan's role as a key U.S. ally in the Asia-Pacific is undergoing subtle yet profound changes. On one hand, U.S. reliance on Japan as a purely financial lever has diminished. On the other hand, as the U.S. pursues "strategic retrenchment," it expects Japan to assume a greater frontline balancing role in the region, inadvertently pushing Japan to the forefront of geopolitical rivalry and elevating its exposure to geopolitical risks.
Changes in the geopolitical landscape and the contraction of U.S. influence are the root causes of the recent turbulence in JGBs and the yen. The relative decline of U.S. hard power and the slowdown in its external asset expansion have weakened its ability and willingness to use allies like Japan for capital leverage operations. Simultaneously, U.S. strategic adjustments in Asia have created space for right-leaning political tendencies and strategic adventurism within Japan, potentially undermining the relatively stable regional security framework established since the 1970s and 80s. Markets have begun reassessing the geopolitical security foundations underpinning Japanese assets, leading to a fading of their "safe-haven" aura, directly reflected in the concurrent adjustments of yen and JGB prices.
Although Japanese government intervention can stabilize market sentiment in the short term, the foundations of the yen and JGBs remain fragile over the medium term. Guidance from Japanese authorities may temporarily smooth market volatility and alleviate liquidity pressures. However, these measures cannot fundamentally reverse the asset valuation shifts driven by changes in Japan's geopolitical role. As long as Japan remains on the frontlines of major power competition, a geopolitical risk premium will persist in its assets, potentially amplifying with regional tensions and making it difficult for the yen and JGBs to regain their former stable "safe-haven" status.
The erosion of the unipolar order and the progression toward multipolarity will continue to influence global financial markets over the medium term. The "de-securitization" trend of Japanese assets is a specific microcosm of the multipolar narrative playing out in global finance. It reflects U.S. attempts to maximize its interests while implementing strategic retrenchment across different regions: seeking territorial gains in Europe, directly securing resources in the Americas, and leveraging Japan's potential risk-taking to enhance its bargaining position in Asia. In the short term, the U.S. may employ such strategies to alleviate its own challenges, intensifying the "circle the wagons" effect among advanced economies. However, in the long run, the macro trend of global capital and growth tilting toward emerging markets, alongside the diversification of international monetary and financial systems, is unlikely to reverse, continuously reshaping the foundational logic of global asset pricing.
Risks include escalation of regional conflicts, political backlash in the U.S., and financial market impacts from heightened uncertainty.