With a title like "The Lady of the Lake", one's thoughts naturally turn to things Arthurian, especially when a special sword gets mentioned. Forget it, though. This story riffs on things Japanese. However, it does involve a dragon, who eats damsels, and a sea god, who is beautiful and literally drips with life - goldfish keep falling from his kimono. The way I pictured him, he wore a kimono with a goldfish (koi) pattern on it, and sometimes they came to life and fell into the sea around him. Of course, there's no reason they couldn't come spontaneously into existence because of his godhood and fall into reality.
I really enjoyed this story by E Catherine Tobler. Find it here at Beneath Ceaseless Skies 074. I hope you do, too.