What are the implications of China’s latest rare earth export restrictions on Japan?

On 6 January 2026, China announced tighter export controls on dual-use items to Japan, including seven medium and heavy rare earth elements and any products containing them, including rare earth permanent magnets (REPM).

Although the policy specifically targets Japanese military users, military end uses, and any end uses deemed to enhance Japan’s military capabilities, it will significantly increase regulatory scrutiny on rare earth oxides, metals, and permanent magnets destined for Japan. This added paperwork burden is likely to disrupt most Japanese companies using Chinese rare earths at least in the short term.

China accounted for 80% of Japan’s rare earth imports and a third of its REPM imports, highlighting the importance of Chinese material to Japanese supply chains.

What impact could this have on Japanese companies?

While military end use has effectively been restricted since the earlier April 2025 export control framework, the January 2026 announcement represents a country-specific tightening. Under the same legal framework, Japanese companies now face stricter license reviews, higher compliance burdens, and greater approval uncertainty compared with other export destinations.

Japan, like much of the world, remains dependent on China for rare earth raw materials, with reliance even more pronounced for the heavy rare earths, of which over 99% are refined in China. This dependency is particularly acute for magnet producers such as Proterial, Shin-Etsu Chemical, and TDK, all of whom depend on Chinese supplies of NdPr, Dy, and Tb oxides, metals and NdFeB magnets.

Trade data highlights both dependency and volatility. China’s exports of rare earth oxides and compounds to Japan increased from 4,262 tonnes to 5,380 tonnes year-on-year, a growth of approximately 26%. In 2025, REPM exports dropped sharply between April and June, bottoming at 80 tonnes in May, before rebounding once restrictions eased.

The immediate implementation of the January controls raises risks of shipments being detained at ports, disrupting long-term supply contracts between Chinese exporters and Japanese firms. This poses direct risks to downstream OEMs. Proterial produces 2,500–3,000tpa of sintered NdFeB magnets for traction motors and supplies Toyota, Lexus, Honda, Nissan, and Mazda. Shin-Etsu operates around 3,400tpa of sintered magnet capacity across Japan and Vietnam, supplying Toyota, Subaru, and Suzuki. Any prolonged delays in raw material licensing could constrain magnet output, affecting EV and wind turbine production schedules.

Japan is investing in heavy rare earth reduction technologies and overseas capacity. Proterial has announced a new mass production line of Dy/Tb free magnets in 2025 and are ramping up through 2026. However, short term substitution of China’s rare earths remains limited. As a result, the January 2026 controls significantly elevate supply risk for Japan’s EV and renewable energy OEMs, reinforcing rare earths as a critical geopolitical vulnerability rather than a purely commercial input.