China has long held a commanding position in the global rare earth market. While its precise share of global rare earth reserves is debated, ranging from 23% to 36.5%, its role as the leading exporter of these crucial elements is undisputed. Rare earths are indispensable for the development of high-tech products, ranging from consumer electronics to defense systems, and are fundamental to new green technologies, including electric vehicles (EVs) and wind turbines. Recognizing the strategic importance and finite nature of these resources, the Chinese government committed to utilizing these reserves primarily for its economic development. To achieve this, Beijing progressively imposed more restrictive export restraints and duties on rare earths and other strategic metals. These measures were designed to reduce global supply, thereby artificially inflating prices for importing countries and incentivizing foreign firms to relocate operations to China, where a two-tier pricing system offered significantly lower domestic prices.
In 2010, the global rare earth market faced a major upheaval when China cut its export quotas by 40%, raising concerns of supply shortages among importing nations. Increased export duties and a crackdown on illegal mining exacerbated this. As a result, the price of dysprosium (Dy) oxide surged from $91/kg in January 2009 to a peak of $2,377/kg by August 2011.
A temporary ban on rare earth exports to Japan during a territorial dispute further highlighted Japan's overreliance on China for nearly 90% of its rare earth imports, causing panic in vital sectors like the automotive industry. This crisis prompted Japan to allocate ¥100 billion towards a comprehensive rare earth strategy, showcasing the urgency of addressing its vulnerability.
The 2010 incident was a wake-up call for industrialized nations, accelerating efforts to find alternative sources and manage resources better. It led to a phenomenon of "demand destruction," particularly in the electric vehicle sector, where non-rare earth motors gained significant market share.
Ultimately, China's actions reflected a geopolitical strategy, weaponizing economic interdependence and signaling the necessity for nations to reevaluate their economic security as a matter of national security. This set a precedent for China's subsequent export controls, prompting other countries to prioritize supply chain resilience.
Alarmed by its vulnerability, the Japanese government quickly responded with a supplemental budget of ¥100 billion (approximately $1.2 billion) in October 2010. This funding kick-started a "Rare Earths Comprehensive Plan," successfully reducing Japan's reliance on Chinese rare earths from 80% to less than 60%.
Japan's initial reactive measures evolved into a proactive "3D strategy," integrating mineral security with national goals: "De-risking energy security," "Decarbonizing the economy," and "Developing new industries." This approach allows critical mineral policies to support interconnected national priorities.
The Ministry of Economy, Trade and Industry (METI) designated 35 minerals as critical and subsidized battery recycling and mineral processing initiatives. The Japan Organization for Metals and Energy Security (JOGMEC) has played a vital role in stabilizing resource supplies, facilitating public-private partnerships for overseas development.
Japan's rapid response was supported by a solid institutional framework, particularly JOGMEC. This strong capacity and political commitment enabled a swift, multi-faceted response, demonstrating that agile government institutions are essential for national resilience in geopolitical shocks.
Japan's strategy goes beyond crisis management; it reshapes its industrial and energy landscape. By embedding mineral security within a broader 3D framework, Japan positions itself as a thought leader in "economic security," driving national transformation in the complex 21st-century geopolitical landscape.
Japan's diversification strategy has focused on significant overseas investments in mining and processing. A key partnership with Australia's Lynas Rare Earths began with a $250 million investment by the Japan Oil, Gas and Metals National Corporation (JOGMEC) in 2011, followed by $134 million in 2023. Lynas now supplies 90% of Japan's neodymium and praseodymium necessary for electric vehicle and wind turbine magnets.
In Vietnam, Japan aims to strengthen its rare earth capabilities. After a joint venture with Toyota Tsusho and Sojitz was abandoned in 2013, SRE Vietnam is now seeking to triple its processing capacity to 3,929 tons by June 2025. Additionally, a new rare earths plant is being constructed in Lacq, France, operated by Caremag, with €216 million ($245 million) in funding from various partners. This facility will be the first outside China to extract heavy rare earths like dysprosium and terbium, expected to start operations by the end of 2026.
JOGMEC has also invested C$10 million in Namibia's Lofdal Heavy Rare Earth Project, holding a 40% interest. Overall, JOGMEC has invested over $600 million in more than 100 critical mineral projects since 2004, seeking to secure a stable supply chain for essential minerals for Japan's technological ambitions.
Japan actively engages in multilateral frameworks to enhance supply chain resilience. It is a founding member of the Minerals Security Partnership (MSP), collaborating with the U.S., Australia, and the European Union to foster transparent and resilient supply chains for critical minerals like lithium, cobalt, and other strategic resources. Japan also participates in initiatives aimed at critical minerals supply chain security within the Quad security dialogue and the Group of Seven (G7). Japan's proposal to partner with the U.S. on rare earths and critical minerals is a strategic move to secure tariff relief, including technical collaboration for refining and processing in third countries.
Japan's strategy recognizes that building new, resilient supply chains for critical minerals is a capital-intensive, long-lead-time endeavor that often extends beyond typical private sector investment horizons due to inherent market volatility and geopolitical risks. By deploying sustained, patient public capital, often through public-private partnerships and risk-sharing mechanisms, Japan actively de-risks and incentivizes the development of alternative mining and processing projects globally. This approach is crucial for overcoming the inertia of existing supply chains and competing with established, low-cost producers like China, demonstrating a sophisticated understanding of market failures in strategic sectors.
Japan correctly identified that while diversifying raw material extraction is important, the true choke point in the rare earth supply chain is the downstream processing and refining capacity, where China holds an overwhelming near-monopoly. By strategically investing directly in processing facilities outside China, such as the Caremag plant in France, and supporting initiatives in Vietnam and Malaysia, Japan is directly confronting and addressing the most entrenched aspect of China's dominance. This targeted approach demonstrates a sophisticated, multi-layered understanding of the rare earth value chain and where strategic leverage truly lies, aiming for a more complete form of supply chain resilience.
Japan's 2020 resource strategy set ambitious targets for strategic stockpiling of critical minerals. For most critical minerals, the target is 60 days' worth of supply, while for high-risk materials, this target extends up to 180 days.
Japan immediately commenced stockpiling rare earth elements in 2010/11 following the Chinese embargo. However, this initial rush by Japanese companies to secure materials inadvertently "exacerbated a price bubble that lasted for over a year". Despite this, stockpiling is recognized as an effective method for managing price spikes and mitigating resource scarcity, particularly in response to "relatively short or limited trade disputes or supply chain disruptions". This strategy is deemed particularly effective given China's current economic fragility, which might limit its ability to sustain prolonged trade disputes.
Stockpiling, while not a panacea for long-term dependency, is a crucial tactical measure that provides immediate supply security. It buys valuable time for more complex, long-term diversification and innovation strategies to mature and come online. The experience from Japan's initial efforts suggests that coordinated and considered stockpiling, potentially through multilateral efforts like the Minerals Security Partnership, is essential to avoid market distortions. This transforms a reactive measure into a proactive tool for market stabilization and a credible deterrent against economic coercion, demonstrating a nuanced understanding of its role within a broader resilience strategy.
Japan's response to the 2010 rare earth squeeze was rapid and comprehensive, with a national plan and significant budget allocations. This urgency stemmed from its vulnerability due to China's export ban, allowing Japan to develop resilience strategies ahead of the US and EU, who responded more slowly and less cohesively to China's restrictions, launching formal WTO complaints but lacking immediate restructuring plans.
All three regions, Japan, the US, and the EU, aim to "de-risk from China," support "decarbonization," and ensure "economic stability," yet their designated critical mineral lists differ: Japan has 35, the US 50, and the EU 34, with 16 categorized as "strategically important raw materials."
The US has implemented several significant policies, like the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, which incentivize domestic sourcing of critical minerals and aim to limit China's technological advancement. Conversely, the EU's Critical Raw Materials Act seeks to process 40% of its minerals and mine 10% domestically by 2030, acknowledging its reliance on China.
Japan, while sometimes aligning with US controls, focuses on enhancing domestic resilience and reducing susceptibility to coercion, rather than directly countering China’s tech growth.
Japan's experience following the 2010 rare earth squeeze serves as a significant case study in national preparedness and strategic foresight. By recognizing the implications of critical mineral dependency early on, Japan implemented a well-funded, multi-faceted response that integrated economic security with decarbonization and industrial development. This approach helped mitigate vulnerabilities and strengthen industry resilience.
Japan has maintained its commitment to critical mineral strategies, investing in areas like deep-sea mining, advanced recycling technologies, and material substitution, particularly in perovskite solar cells. Participation in multilateral efforts like the Minerals Security Partnership, G7, and Quad emphasizes its role in fostering a transparent and resilient global supply chain. However, overcoming China's dominance in rare earth processing remains a significant challenge.
Japan's experience offers valuable lessons for nations facing critical mineral dependencies. It highlights the need for a holistic strategy that includes supply diversification, demand reduction through innovation, robust institutional frameworks, public-private investment, and proactive international partnerships. Amid rising resource nationalism and trade tensions, Japan's comprehensive approach provides a model for enhancing national industrial resilience and sustainability.