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CME Group Japanese Electricity Futures & Options Review

As part of its series on Japanese power, FIA Japan Editorial Board asked Mr. Nicolas Dupuis, Executive director Energy, Asia Pacific to share a review of the CME Group markets.

“Since the initial listing of Japanese electricity futures by various domestic and international exchanges, this market has experienced significant price movements and a gradual growth in trading volumes of its derivative instruments.

CME Group first introduced Japanese electricity futures in February 2021 [1], followed by Japanese electricity options in January 2022 [2].

CME Group launched Japanese electricity futures to provide instruments for participants in the physical market to better manage price risks associated with power generation and distribution. In 2021, CME Group launched Yen-denominated natural gas futures for Platts Japan Korea Marker JKM and the Japanese Crude Cocktail JCC [3]. JKM and JCC are two widely used benchmarks for Liquefied Natural Gas (LNG) in Japan. With these contracts, power generators can hedge the spread between the price of natural gas used by power plants and the price of electricity.

All contracts are listed on NYMEX, which allows for electronic trading or block trade submissions during Japanese trading hours [4].

With this set of contracts, CME Group is currently offering the widest range of hedging instruments related to the Japanese power market.

As the liquidity of Japanese electricity futures has increased significantly since the introduction of these hedging instruments, the next natural step for this market is the development of listed options.

CME Group already lists options based on JEPX base load prices for the Tokyo area.

Options are important hedging instruments and are widely used in electricity derivatives markets outside of Japan. For instance, in Australia - currently the largest power derivative market in APAC - the volume of electricity options has exceeded the volume of electricity futures in the last three financial years [5]. 

Price volatility is a normal feature of liberalised electricity markets and Japanese electricity prices have become more volatile since the market has been fully opened.

Electricity prices in Japan experienced an unprecedented rally in the first two weeks of 2021. 30-minute spot prices on JEPX reached 250 JPY/kWh in mid-January 2021. The monthly average price for base-load electricity in Tokyo reached a 66.53 JPY/kWh that month, up 814% compared to January 2020.

While the market has not seen a similar peak, the volatility in the 30-minute spot prices has remained high since then. While most of these prices were concentrated within a 10 JPY/kWh range in FY 2017, prices now tend to be distributed into a wider price band.

Number of JEPX 30-minute spot prices (Tokyo area) per price-range

This volatility could remain elevated as the Japanese electricity market is expected to experience fundamental changes, in line with the country’s ambitious plan to reduce carbon emissions and achieve net-zero GHG by 2050.

In its 6th basic energy plan released in 2021, METI wants nuclear power to supply 20-22% of Japan's power needs by FY2030 [6]. To achieve this goal, all the nuclear power plants that have applied for restart safety reviews with the Nuclear Regulation Authority must be returned online. Although Kansai, Kyushu, and Shikoku have already restored all their capacity, other regions like Hokkaido, Chubu, and Tokyo are still waiting for design reviews or final inspections to be completed.

Under the plan, renewables should account for 36-38% of power supplies in 2030, double 2019’s level and well above its previous 2030 target for 22-24%. To achieve this ambitious goal, Japan is accelerating its efforts to develop offshore wind power as an essential means to achieve carbon neutrality by 2050 and ensure energy security.

Beyond these domestic policies, growing international tensions have increased the price volatility of international natural gas and thermal coal markets. This in turn feeds volatility in the Japanese electricity market as fossil fuels still play a dominant role in the nation’s current power generation mix.

Japan for instance, imports natural gas in the form of LNG. The price of these imports is linked to the international gas markets and have seen a massive increase following the start of the Russo-Ukrainian war, as reflected by the final settlement prices of JKM (Platts) futures.

CME Group’s options for Japanese electricity provide an avenue for firms looking to diversify their trading strategy and manage efficiently price risks related to volatile prices.

These options are supported by voice brokers already offering Japanese electricity futures. Block trades can be submitted to CME Clearing house in real-time for immediate confirmation and processing.

CME Group encourages market participants in Japan explore these new instruments with a view to the further development of a robust derivatives market for Japanese electricity”.

[4]: Sunday-Friday 5:00 p.m. – 4:00 p.m. CT with a 60-minute break each day beginning at 4:00 p.m. CT

[5]: ASX Australian Electricity Market Overview FY 2023

The content in this communication has been compiled by CME Group for general purposes only and is not intended to provide, and should not be construed as advice. It does not take into account your objectives, financial situation or needs, and you should obtain appropriate professional advice before acting on or relying on the information set out in this communication. Although every attempt has been made to ensure the accuracy of the information within this communication as of the date of publication, CME Group assumes no responsibility for any errors or omissions and will not update it. Additionally, all examples and information in this communication are used for explanation purposes only and should not be considered, investment advice, the results of actual market experience, or the promotion of any particular products or services. In Japan, this communication is for distribution solely to certain qualified sophisticated investors as set forth in the Commodities Futures Act of Japan (Law No. 239 of 1950, as amended) and the related rules, as appropriate. Other than that, the information contained in this communication is not directed at any person in Japan and is not intended for marketing or soliciting Japanese customers to trade or use any specific CME products or services.



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