@JJMerrill: Japan is one of our main nations, but it suffers from AI problems with fleet management. The naval preferences for most major nations sadly are hardcoded (AI file entries are simply ignored), so we just can't get the USA to properly use all their new shiny warships produced until 1943. Many will just rot in ports while a human player may easily get rid of the resulting few and small flotillas as they drop into the Pacific. You might still be somewhat entertained fighting China or the Allies in Burma, but it's clearly one of our weaker theatres until the naval AI gets somewhat more competent.
As for the Kwantung Army, it mostly is supposed to help a japanese AI separate warfare in the Pacific and in Asia. As a human player, you should annex them and make use of the additional IC.
@qer: It just proves your point when you want all of these ships to engage in the same 5-hour-combat within the same naval province at the same time and at full efficiency. In most cases, the naval province layout easily provides enough space to rebuild these engagements as they extend over several combats of smaller fleets over some days and provinces. That's what we built our assumptions on. Larger battles may still ensue, of course at greatly reduced efficiency. But do we exactly know how efficient those fleets really fought back then at Jutland?
Micro management is an issue, but only if you don't go for a standard size of 18 ships. That's what happens in MP games since any smaller fleet will suffer unnecessary casualties: You take two or three 18 ship-fleets and they move next to each other in adjacent provinces to either catch the enemy, distract him, block his reinforcements, being able to pursue him or secure your own retreat. You avoid sending them into the same 5-hour-engagement inside the same province, but finally they all fight the same large naval battle consisting of several engagements. The auto promotion should provide you with enough leaders for fleets of 18.
Edit: Another important reasoning for a maximum command limit of 18 ships was to give small and medium naval nations a chance against large naval powers so that they would at least consider some investment into their navies. If you just have to build a doomstack with ENG or USA to completely wipe the smaller navies of ITA or GER because they can't accumulate the same amount of ships, why should they even bother with naval warfare any more?