An electricity symposium in Tokyo this week was crowded with global investors looking to profit from Japan's volatile power market. The global energy upheaval triggered by the war in the Middle East is creating opportunities for hedge funds to capitalize on oil, coal and gas prices. Japan liberalized its electricity market a decade ago, but futures trading only started to take off in the past few years, giving foreign funds a new way to profit from price swings.
The sector has already attracted foreign energy firms such as BP Plc and Engie SA, which launched Japanese power trading desks in 2023. The following year, Ken Griffin's Citadel bought Tokyo-based Energy Grid Corp., and Mercuria Energy Group Ltd. started trading there. Japan's electricity market remains immature by global standards, with monthly futures trading surging to a record earlier this year, but volumes were still less than a 40th of those in Germany.
Representatives from at least six hedge funds attended a Japan power symposium in the capital this week, alongside commodity traders. High-frequency trading firms including XTX Markets and Jump Trading are now looking for opportunities in electricity outside Europe and the US. The biggest prize is the more liquid and volatile physical market, though getting access is harder since firms need a local presence and people who understand Japan's complicated power system.
Millennium Management recently hired a trader from the country's biggest generator. Wall Street traders are increasingly testing Japan's fast-growing market, but relatively thin volumes and regional price dislocations could bring losses before a position pays off.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing