We contextualise the present crisis by drawing comparisons with the Russia-Ukraine energy shock of 2022–23, showing how Japan’s power system has — and has not — evolved since this earlier geopolitical rupture.
The analysis finds that, relative to 2022–23, the current shock is less likely to produce the same degree of margin compression across the sector. Reforms to Japan’s fuel cost adjustment mechanism have introduced greater flexibility, allowing utilities to pass through more of their elevated procurement costs. However, the buffer is not uniform: those utilities still heavily reliant on thermal generation — particularly JERA, Hokkaido Electric, Chugoku Electric, and Tohoku Electric — remain more exposed to prolonged price volatility, with some carrying leverage profiles that leave limited room for cashflow deterioration.
From a credit market perspective, we note spread widening across Japan’s USD utility bonds over the past month, with shorter-duration issues widening by an average of 12bps and longer-duration bonds by approximately 14bps.
We end by examining Japan’s short-term response to the current crisis and how it runs counter to its stated decarbonisation commitments.
