The Children's Investment Fund Mangement had wanted to buy up around ten per cent of Electric Power Development Co - doubling its current stake.
According to John Ho, head of the $10 billion fund's Asian division, this move was directly blocked by the Japanese government.
"It's a sad day for Japan. Hard-working Japanese people have been failed by the lack of leadership,'' he commented.
"Japanese assets will also be undervalued because legitimate capital is being turned away [by such decisions].''
Mr Ho received strong support from fellow hedger Hiromichi Tsuyukubo, who helps to manage $500 million of assets at the Tokyo-based Myojo fund.
"I'm quite frustrated with the latest developmentâ¦it's hard to understand what these bureaucrats are thinking," he told the news agency.