Japan scrambles to secure rare earth supplies as Chinese exports plunge

    Japanese manufacturers are facing mounting pressure as Chinese exports of seven restricted rare earth products to Japan fell 34% in the first four months of this year compared with the same period last year, according to data compiled by Nikkei. The decline accelerated sharply in March and April, with shipments falling 88% and 82% respectively year-on-year.

    For dysprosium and terbium—critical elements used in electric vehicle motors and wind turbines—imports from China have effectively ground to a halt. Since China tightened controls last April, shipments of these heavy rare earths to Japan have fallen to zero as of January this year. Another strategic element, yttrium, which is used in medical lasers and semiconductor manufacturing equipment, saw Japanese imports from China drop by more than 90% in the same period.

    The restrictions follow a tightening of China's dual-use export controls in January, which came after then-Prime Minister Sanae Takaichi's parliamentary remarks on Taiwan that drew sharp criticism from Beijing.

    Despite Japan's long-running efforts to diversify rare earth sources since 2010, the country's metal and energy security agency reported that 71.9% of Japan's rare earth imports still came from China in 2024.

    Economic impact

    Economist Takahide Kiuchi of the Nomura Research Institute has estimated that a three-month disruption in rare earth supply could cost the Japanese economy approximately 660 billion yen, equivalent to 0.11% of nominal GDP. If restrictions continue for a full year, the loss could rise to about 2.6 trillion yen, representing a 0.43% reduction in GDP.

    Japanese automakers have already felt the strain. In May this year, Suzuki was forced to suspend production of a major model due to the export controls.

    Seeking alternatives

    In response, Japanese firms are accelerating efforts to diversify. Trading house Sojitz began importing heavy rare earths from Australia's Lynas Rare Earths in October—the first such imports produced from Australian ore and refined in Malaysia. Sojitz CEO Kosuke Uemura said his company would continue promoting diversification to ensure stable supply of essential materials.

    JX Metals has taken a stake in an Australian mining project, while Proterial (formerly Hitachi Metals) is considering building a plant in India to produce neodymium magnets that do not require heavy rare earths. Mitsubishi Materials has invested in a US recycling technology company.

    The Japanese government is also stepping in. In November, Tokyo announced plans to support mining and refining projects through the state-run Japan Organisation for Metals and Energy Security (JOGMEC), including equity investments and subsidies. The government has also encouraged deep-sea mining exploration off Minamitorishima island in the Pacific, with commercial operations possibly beginning as early as 2027.

    However, building independent refining capacity outside China will take years, and Australian rare earths are likely to be more expensive than Chinese supplies. In the meantime, some Japanese manufacturers have resorted to assembling motors using rare earths within China and exporting the finished components—a strategy that bypasses direct controls but raises longer-term concerns about production capacity shifting out of Japan.