Just a thought, only marginally out of the energy sector, but given the surprise change of government in Japan, and what appears to be a growing sense in the market that this government is more focused, finally, on fiscal restraint (or least this threat of massive debt overhang to deal with) and less concerned about maintaining the weak-policy on JPY and even stating their ability to intermediate has declined, it looks like the JPY is keeping its bid. The market—big vocal guys like Jim O’Neil at GS for example—have been pounding the table that the JPY would decline back to 120 eventually on failing demographics and a larger global recovery, and it’s on its way, but slower. Maybe it’s because the US has usurped Japan as the ultimate source of funding and itself is now in a fiscal death spiral; maybe it’s these demographics and the start of deleveraging a bit, I’m not sure, it’s complicated. But whatever the root cause(s), the implication of a stronger than expected JPY (particularly against the $) absolutely HAS to be a weaker domestic industrial and manufacturing economy in Japan. Until China de-pegs, Japan’s opportunities for exports (at least market share risk) seem to be declining; in fact, what we are seeing are Japanese companies setting up shop in China (or elsewhere) instead, similar to the US. Therefore, the Japanese ‘equity market’ might be able to do ok, particularly if this increased JPY leads to a bit of insulation on domestic consumption, but the Japanese economy could be fairly troubled. Utilities would be in the cross hairs of declining consumption.

The key to figure out is: is this a currency issue primarily, or is it something else structural? We know that Japanese energy companies are short Yen in revenues and long Yen in expenses, eg, their costs fall when the JPY is strong, but now perhaps the JPY relative strength is enough to have structurally interrupted volumes and we know what slack does to prices on top of that!…