Rare Earths Reveal Japan's Deeper Supply Chain Challenge 

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China's latest rare earth restrictions have revived a question Japan first confronted more than 15 years ago: how much dependence on one country is too much?

Since late 2025, China has effectively cut Japan off from several heavy rare earths and related materials, including dysprosium, terbium, yttrium oxide, and gallium. The disruption coincides with diplomatic tensions over Taiwan and echoes the 2010 rare earth shock that followed a Chinese fishing boat collision near the Senkaku Islands.

The materials are small in volume but large in strategic importance. They are used in high-performance magnets, electronics, defense equipment, electric vehicles, and semiconductor-related products. Beijing has continued exporting finished rare earth magnets, but the latest restrictions have reminded Japan that China still controls critical chokepoints in the supply chain. 

Uneven Progress

Yasuyuki Todo, a professor at Waseda University's Faculty of Political Science and Economics and program director at the Research Institute of Economy, Trade and Industry, told Japan Forward that since 2010, "Japan's supply-chain diversification has advanced in some areas and not in others." 

Using UN Comtrade data, Todo showed that China's share of Japan's imported parts has declined since around 2011, following the Senkaku-related rare-earth shock. But it remains above 25%. The United States, by contrast, reduced China's share of its parts imports from around 20% to below 10%.

The picture is more troubling in some sectors. China still accounts for nearly half of Japan's auto parts imports, a level that Todo said remains high even compared with before the pandemic. In electrical and electronic products, China's share has been broadly flat.

Rare earths look better at first glance. "At one point, China's share was around 80% or 90%, but recently it has fallen to around 40%," Todo said. Vietnam's share has risen, and in some monthly data, it has exceeded China's.

But Todo cautioned against reading that as a sign of safety. "If you ask whether 40% or 50% is low, as a degree of dependence, it is still high," he said. Broad categories can also hide sharper vulnerabilities. In some specific rare earth materials, dependence on China may still be close to total.

Still Exposed

Japan is not where it was in 2010. In rare earths, Todo said, "supply-chain diversification and technological development have both moved forward," with companies broadening procurement and developing magnets and motors that depend less heavily on the materials. "With rare earths, Japan has handled the issue reasonably well," he said.

The problem is that "reasonably well" is not the same as secure. Demand for rare earths should have risen sharply over the past decade because of electrification and advanced manufacturing. Todo said Japan's import volume has not exploded, partly because substitution technologies have helped. But if China imposes strong export controls, Japan would still suffer real damage.

That risk is no longer exceptional. Todo said companies once tended to treat security-related or protectionist supply-chain disruptions as unusual events. That assumption has weakened.

"Disruptions like this are becoming more common," he said. "Companies need to recognize that supply-chain risk has entered a new phase."

Todo warned against preparing only for the risks that are already obvious.

"Until recently, the focus was often on rare earths and semiconductors," he said. "But now we see problems when oil does not come in, when naphtha is short."

Middle East instability has exposed the vulnerability of energy and chemical inputs, while the pandemic showed how quickly even masks and medical goods can become strategic concerns. Japan, Todo said, needs to look across key materials before the next disruption reveals another hidden dependence.

De-Risking, Not Decoupling

"Completely separating from China is not something we can consider," Todo said. "The economic losses would be too large."

The alternative, he said, is de-risking: keeping economic ties with China where they make sense, but reducing dangerous levels of dependence in strategic sectors. If Japan allows dependence rates of 50% or 80% to continue, a future crisis could produce a sudden and far larger shock.

"It's better to shrink that dependence somewhat now," Todo said, "so that a major loss does not occur all at once."

That does not mean bringing everything back to Japan. Reshoring can help in some areas, but Todo warned that "If we overdo domestic production, there is a danger that we damage economic efficiency too much."

Friendshoring has limits as well. The United States remains essential, but recent years have shown that even dependence on Washington can carry political risk. Europe has its own vulnerabilities.

That makes choosing partners more complicated than it sounds. "The question is: what constitutes a friendly country?" Todo said.

Many resource-rich countries in the Global South have close ties with China. Japan, therefore, needs diplomacy, trade, investment, and development assistance to strengthen those countries and make them more reliable economic partners. Japan is preparing to start trade talks with Mercosur, partly to diversify supplies of oil and critical minerals and reduce dependence on China for rare earths. 

What Government Should Do

Todo said the government's most important role is not to dictate every corporate decision. It is to provide information.

Japanese companies, especially small and midsize firms, often lack detailed knowledge about overseas markets, regulations, laws, suppliers, and political risks. That problem has become more serious as economic security becomes part of supply-chain planning.

Risk information is especially difficult for companies to assess on their own. Todo said firms may not be able to assess whether a country is politically close to China, vulnerable to coercion, or likely to become unstable.

"The government needs to gather overseas risk information and properly support the private sector with it," he explained.

Companies then have to use that information as part of their own risk management. Todo said they should not retreat inward, but actively diversify while weighing both profit and security.

International frameworks also matter, even if they cannot immediately solve shortages. Cooperation through the Quad, South Korea, Mercosur, the OECD, and other partners may not instantly provide oil, minerals, or parts when everyone is under pressure. 

But Todo said such frameworks are still far better than having none. Countries that help others in times of shortage may be more likely to receive help when their own crisis comes. "That kind of long-term relationship of trust will become extremely important," he said.

A Ten-Year Strategy

Asked what Japan's supply-chain strategy should look like over the next decade, Todo gave concrete targets.

China still accounts for roughly 25% of Japan's imported parts. "That should be reduced to around 15%," he said. In rare earths, he said Japan should aim to reduce China's share to around 10% or 20%.

Doing that will require more than emergency stockpiles. Japan needs new supply chains with Global South countries, stronger economic relationships with resource-rich partners, and continued diplomacy. At the same time, Todo said ties with the United States remain crucial, and Europe should also be brought more deeply into open trade frameworks.

"If the EU joined the CPTPP, that would create a major free trade framework," he said.

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Author: Daniel Manning

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