Government-Business Alliance Forms to Strengthen Supply Chains

On January 19, 2026, Japanese Prime Minister Sanae Takaichi met with Keidanren (Japan Business Federation) Chairman Yoshinobu Tsutsui at the Prime Minister's Office to discuss strengthening supply chain resilience. During the meeting, Takaichi requested the business community to "advance efforts toward supply chain strengthening so that critical materials do not become overly dependent on specific countries."

In response, Chairman Tsutsui stated that "the business community will also work on diversification of procurement while emphasizing strategic benefits." The two sides agreed on government-private sector cooperation to strengthen supply networks. At the conclusion of the meeting, Prime Minister Takaichi indicated she would "proceed with representations to China in coordination with like-minded countries," signaling diplomatic efforts alongside economic measures.

Background: China's Escalating Export Restrictions

This meeting comes against the backdrop of China's intensifying export restrictions against Japan. On January 6, 2026, China's Ministry of Commerce announced it would strengthen export controls on dual-use items to Japan, effective immediately. This measure is widely seen as retaliation for Prime Minister Takaichi's parliamentary statement on November 7, 2025, in which she said a Chinese invasion of Taiwan could constitute a "survival-threatening situation" for Japan.

While China has not specified the affected items, experts believe rare earth elements are likely included. Chinese state media has reported on plans to strengthen rare earth export controls, raising concerns about serious impacts on Japanese industry.

Understanding Rare Earths and Their Importance

Rare earth elements comprise 17 metallic elements essential to modern high-tech products, from electric vehicle (EV) motors and smartphones to wind turbine generators, medical equipment (MRI machines), and aerospace and defense applications.

Of particular concern are "heavy rare earths" such as dysprosium and terbium, which are necessary for neodymium magnets used in EV motors. Japan depends on China for nearly 100% of these materials. China controls approximately 70% of global rare earth production and over 90% of refining and processing, giving it significant economic and diplomatic leverage.

Japan's China Dependency and Economic Risks

Following China's export restrictions during the 2010 Senkaku Islands incident, Japan learned a hard lesson and has since worked to diversify its supply sources. As a result, China's share of Japan's rare earth imports has decreased from about 90% to approximately 60%.

However, according to Nomura Research Institute estimates, a three-month rare earth export restriction could cost the Japanese economy approximately 660 billion yen ($4.2 billion) and reduce annual GDP by 0.11%. If restrictions continued for one year, losses could reach 2.6 trillion yen with a GDP impact of 0.43%.

Key industries at risk include:

  • Automotive: Neodymium magnets in EV and hybrid vehicle motors
  • Electronics: Smartphones, semiconductor manufacturing equipment, hard disk drives
  • Renewable Energy: Large wind turbine generators
  • Medical Equipment: Powerful magnets in MRI machines
  • Aerospace and Defense: Aircraft engines and defense-related equipment

Japan's Four-Pillar Strategy

The Japanese government and industry have been addressing the rare earth challenge through four main strategies.

1. Supply Source Diversification

Trading company Sojitz and JOGMEC (Japan Organization for Metals and Energy Security) have invested in Australia's Lynas Corporation, securing contracts for up to 65% of heavy rare earths refined at Lynas's Malaysian plant for Japanese supply. In 2025, Japan also invested in France's Caremag, expecting to eventually secure 20% of Japan's heavy rare earth demand.

2. Domestic Rare Earth Development

The seabed within Japan's Exclusive Economic Zone (EEZ) around Minamitorishima (Marcus Island) contains world-class rare earth mud deposits. In January 2026, JAMSTEC (Japan Agency for Marine-Earth Science and Technology) began test mining using the deep-sea drilling vessel "Chikyu." This unprecedented attempt to extract resources from approximately 6,000 meters depth aims for commercialization after 2028.

3. Alternative Technology Development

Research continues on motors and magnets that don't require rare earths. However, commercialization remains distant, and practical alternatives will take time to develop.

4. Recycling Promotion

Technologies for recovering rare earths from used electronic devices are advancing, with hopes of utilizing "urban mines" as a resource.

Strengthening International Cooperation: Japan-U.S. Partnership

In October 2025, Prime Minister Takaichi and U.S. President Trump signed an agreement on critical mineral supply, including rare earths. The United States is also working to reduce China dependency, strengthening cooperation with Australia, Malaysia, and Thailand. Supply chain construction among allies, centered on Japan and the U.S., is accelerating.

Future Outlook and Challenges

The Minamitorishima rare earth project is extremely important for Japan's economic security, but numerous technical and economic challenges remain before commercialization. Extraction from 6,000 meters depth is a world first, and competing with Chinese rare earth prices appears difficult.

However, this is an investment in economic security. Building resilient supply chains free from any single country's control is significant not only for Japan but also for friendly nations with similar concerns.

The Takaichi administration has made clear its stance of firmly responding to China's "economic coercion" while pursuing both supply diversification and domestic production to protect Japan's industrial foundation.

How is your country discussing the diversification of critical material supply sources? What do you think about the risks of China dependency for rare earths and other strategic resources? We'd love to hear your perspective in the comments.

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