Why is my Taiyaki (Cake that looks like a fish) too hard and dry?

I have never made these, but this is what I observe from comparing your recipe to the most readily found online ones:

• Your mix is dry. Other recipes tend to have up to twice as much liquid as yours, by proportion to the flour.

• Your mix has no egg. Every recipe I found included egg, in quantities ranging from 1 egg per 1 cup flour to 1 egg per 1/2 cup flour.

• You include water in your mix. Other recipes I've found contain no water.

These recipe differences mean that your mix has much less liquid than most and also, importantly I think, much less fat. Eggs and milk both contain fat which will give a more tender result.

You also mix all the ingredients directly together. Recipes I found recommended whisking the flour, salt and baking powder together then beating the egg in a separate bowl, creaming the egg with the sugar then adding the milk and only then gently combining the wet and dry ingredients being careful not to overmix. I'm not sure how much difference this makes, but mixing the sugar and dissolving it into the egg rather than putting it directly into a lower hydration mix will allow you to capture tiny air bubbles into your batter which will also tend to make the crumb more tender.

The recipes I see online are slightly different from yours, and could help in solving your problem. In addition to most of your ingredients, they include baking soda and egg. While baking powder does most of the leavening when used in combination with baking soda, that addition, plus the leavening power of the egg will make a significant difference. By the way, 6 tsp of baking powder seems like a lot for the amount of flour in your recipe. Also, check the consistency of your batter. It should be somewhere between the viscosity of pancake and waffle batter. Finally, I would be careful not to over mix. Like pancakes, you don't want to build up the gluten structure of the flour, which would make the cake's texture tougher. This appears to be a good resource.

You need some oil.

I see these are basically pancakes. You need some oil or butter to make a good pancake, or it is too dry, like your fish pancakes have been.

Use an oil with no flavor or a flavor that will be good in the fish cakes. I have some sunflower oil in the refrigerator I use for making pancakes. Corn oil is good too. Or melted butter would be delicious. A tablespoon per cup of flour would be a place to start.