Editor's note: Liu Xu is executive director of the Center for International Energy and Environment Strategy Studies, Renmin University of China. The article reflects the author's opinions and not necessarily the views of CGTN.

Japan's high-end manufacturing — from electric vehicles and industrial robots to semiconductor equipment and medical devices — rests on a fragile foundation: An overwhelming dependence on rare earth elements imported from China. With China tightening export restrictions since early 2026, that foundation is now shaky. The supply shock is already visible in trade data, corporate balance sheets, and factory floors, raising urgent concerns about cost pressures, supply chain resilience, and the global search for alternatives.

A sudden and severe supply crunch

China controls roughly 70% of global rare earth mining and over 90% of the refining capacity that turns ores into usable metals. For Japan, which sourced about 66% of its rare earths from China in 2025, this dependence has become a strategic liability. In January 2026, the country imposed stricter dual‑use export controls on Japan following political tensions. The impact was immediate. Exports of seven restricted rare earth elements to Japan fell 34% year on year in the first four months of 2026, with March and April plunging 88% and 82%, respectively. Critical heavy rare earths like dysprosium and terbium — essential for high‑temperature magnets in EV motors — saw shipments to Japan drop to zero since January. Yttrium, used in semiconductor manufacturing and defense, collapsed by over 90% in the same period.

Japan's automotive industry, accounting for nearly one‑fifth of its manufacturing output, is the hardest hit. Dysprosium and terbium are vital additives that enable neodymium magnets to retain performance at high temperatures — exactly the conditions inside electric vehicle motors. Without them, magnet efficiency drops, and with it the competitiveness of Japanese EVs. Nissan has already reduced heavy rare earth use in its new Leaf motor by more than 90% compared with the 2010 model, but such redesigns take time and cannot cover all applications.

Toyota Group's six major parts suppliers have collectively allocated over 1 trillion yen ($6.1 billion) to R&D in fiscal 2027, with reducing rare earth dependence as a top priority. Denso, Aisin, and others are accelerating development of motors that use less or no rare earths. Yet these solutions are years away from mass deployment. In the meantime, companies are scrambling to secure inventories, and some have already seen production disruptions in certain components.

Beyond automotive, Japan's semiconductor and robotics sectors face similar vulnerabilities. Yttrium is indispensable for semiconductor manufacturing equipment, lasers, and aerospace components — all areas where Japan holds global leadership. Heavy rare earths are also critical for the high‑performance magnets used in industrial robots, defence electronics, and precision medical instruments. With China adding 40 Japanese companies and organizations to its export control and monitoring lists, uncertainty now permeates the entire high‑tech supply chain.

Desperate push to build alternative supply chains

Facing growing concerns over supply security and heavy reliance on China, Japan is making an urgent push to diversify its rare earth supply chains.

Japan's government and private sectors are turning to a range of alternative sources as they seek to reduce exposure to supply disruptions. Sojitz, through a joint venture with government-backed JOGMEC, is expanding cooperation with Australia's Lynas Rare Earths and exploring new mines in Vietnam and Malaysia. Sumitomo Metal Mining plans to boost scandium production by 20% using Philippine ore. JX Advanced Metals is investing in Australian deposits, and Proterial is considering a neodymium magnet plant in India.

International partnerships are becoming another tool in Japan's effort to reduce supply risks. The March 2026 Japan-US action plan on critical minerals included discussions on coordinated trade mechanisms and minimum price systems. Japan and France plan to jointly invest in a heavy rare earth recycling plant in southwestern France in 2027, which aims to supply 20% of Japan's domestic demand.

Japan is also attempting to rebuild more parts of the supply chain at home. Shin-Etsu Chemical is investing at least 35 billion yen ($214.4 million), with 17.5 billion yen ($107.2 million) in government subsidies, to build its first new rare earth refinery in Japan since 2008, boosting capacity for dysprosium, terbium, and yttrium. The government is also pushing seabed mining off Minamitorishima Island, where a February 2026 test recovered 50 metric tonnes of mud containing about 54% medium and heavy rare earths from 6,000 meters deep. A large-scale demonstration is planned for February 2027.

Recycling and substitution efforts are also being accelerated as Japan looks for ways to reduce dependence on imported rare earths. Mitsubishi Electric and Shin-Etsu Chemical are recovering rare earths from household air conditioners, aiming to cut procurement by 35% by weight. Nippon Seiki plans to mass-produce electromagnetic induction position sensors without rare earth magnets by 2028. Tohoku University researchers have developed a zinc-oxide luminescent material that eliminates rare earths, reducing raw material costs to one-tenth.

The cost and competitiveness hurdle

Despite these efforts, the fundamental challenge remains the cost. China has built an integrated, low‑cost system over decades that Japan cannot easily replicate. Considering profitability, seabed recovery is not very realistic as a resource security measure, noted University of Tokyo Professor Toru Okabe, a leading rare earth expert. The price gap — European dysprosium at $2,250 versus China's $270 — illustrates the scale of the disadvantage. Japanese companies are forced to pay premiums in Western markets, eroding their cost competitiveness.

Japan's rare earth crisis is a stress test for its industrial resilience. Inventories are depleting, alternative sources are costly and slow to scale, and substitution technologies are still in early stages. Yet the crisis is also driving unprecedented innovation and international cooperation. Prime Minister Sanae Takaichi has vowed to mobilize public and private efforts to strengthen supply chains for strategic critical minerals. The path is neither quick nor easy, but for Japan's high‑end manufacturing, the choice is clear: Adapt to a world where rare earths can no longer be taken for granted, or risk losing the technological edge that has defined its industrial identity for generations.