Fifteen years ago, Japan found itself at the mercy of an unexpected weapon, rare earths. In 2010, amid a fiery territorial dispute with China over the Senkaku (Diaoyu) islands, Beijing abruptly imposed an unannounced embargo on rare earth exports to Japan. These minerals are essential to the production of everything from vehicles and wind turbines to smartphones, missiles, and fighter jets. At the time, China was supplying over 90% of Japan’s demand. The embargo brought parts of Japan’s advanced industrial economy to a grinding halt.
Today, as China once again uses rare earths as a strategic lever in diplomatic conflicts with new rounds of export controls in 2023 and 2024, Japan finds itself in a very different position. Through a quiet, prolonged campaign of investment, diplomacy, and resourcefulness, it has managed to loosen Beijing’s grip on its critical supply chains far more effectively than most other countries, including the United States and Europe. Japan’s journey toward rare-earth resilience is not one of quick wins or silver bullets. Instead, it is a case study in national perseverance, public-private coordination, and strategic foresight with urgent lessons for countries now scrambling to reduce their dependence on China.
The original wake-up call came in September 2010, when a Chinese trawler collided with two Japanese Coast Guard vessels near the disputed islands. Japan detained the trawler’s captain, sparking outrage in China. Beijing retaliated with a de facto embargo on rare earth exports to Japan, an action that was unofficial but devastatingly effective.
Inside Japan’s trade ministry, the scale of the crisis wasn’t immediately understood. But when the auto industry warned that the entire car supply chain could soon grind to a halt, officials like Tatsuya Terazawa, then a senior policymaker, realized the country’s industrial lifeline was at risk.
The Japanese government rallied. It passed a ¥100 billion (roughly $1.2 billion) supplemental budget aimed at diversifying rare earth sources, investing in recycling technologies, and supporting stockpiles. A key element of the strategy: reduce dependency on Chinese minerals for good.
That strategy led Japan to an ambitious and risky alternative supply chain partnering with Lynas, a struggling Australian mining company that was attempting to establish a rare-earth system independent of China. Lynas owned a rich ore deposit at Mount Weld in Western Australia and was building a refining facility in Kuantan, Malaysia.
In 2011, Japanese trading house Sojitz and state-backed JOGMEC (Japan Oil, Gas and Metals National Corporation) invested $250 million in Lynas in exchange for guaranteed long-term supplies. It was a political gamble, not least because Malaysia’s plant faced legal opposition and public outcry over environmental concerns, including radioactive waste.
But Japan stuck with it. Today, this route from Australia to Malaysia to Japan supplies a growing chunk of the country’s diversified rare earth needs.
Even with Lynas, transitioning away from Chinese dominance has proven difficult. By 2020, Japan had trimmed China's share of its rare-earth imports from 90% to about 60–70% significant but not complete reduction. The refining process remains the biggest chokepoint. It is technically complex, environmentally hazardous, and prohibitively expensive without generous public support.
While China maintains low costs through lightly regulated or sometimes illegal processing, the Lynas plant in Malaysia must comply with strict environmental safeguards. This makes Japan’s rare-earth imports from Malaysia about 50% more expensive than Chinese alternatives, according to financial services group Mizuho.
Firms in defense or high-tech sectors are often more willing to shoulder the extra costs to ensure continuity and reduce geopolitical risk. But manufacturers in highly competitive consumer markets, such as electronics or EVs, face tougher decisions.
Japan’s rare-earth escape strategy proved remarkably prescient. Yet it has not rendered Tokyo immune to China’s economic power. When Japanese Prime Minister Takaichi Sanae recently stated that an invasion of Taiwan could force a military response, Beijing swiftly reacted. It reduced flights, issued travel warnings, and dispatched coast guard vessels again to orbit the disputed islands, all reminding Tokyo of its vulnerability.
So far, China has held back from deploying export controls again, specifically against Japan. But recent restrictions on rare-earth processing technologies and specific metals, applied globally, hint at the kind of leverage Beijing still wields.
Japanese officials believe that any diplomatic reset with China will take not weeks, but years. And if rare earths become a tool of confrontation again, they are better prepared, though the threat remains potent.
For governments seeking to build secure critical mineral supply chains, Japan’s experience offers clear, if sobering, lessons.
First, diversification is slow and costly. Japan began reforming its rare-earth strategy in 2010, and despite sustained effort, full independence remains out of reach 15 years later.
Second, resilience doesn’t come cheap. Competing with Chinese pricing is nearly impossible without public subsidies, streamlined regulation, and international coordination.
Third, trust once broken is hard to repair. Even after China ended its 2010 embargo, Japan continued to diversify. Export controls become a “bell you can’t unring,” one Tokyo-based consultant said.
That’s why Beijing’s most recent export restrictions could once again backfire, spurring others, including the U.S., to finally accelerate their rare-earth strategies. America is now investing in its sole rare-earth mine at Mountain Pass, California, as well as magnet supply chains in Texas and North Carolina. It has signed rare-earth cooperation agreements with Europe, Australia, and Japan.
Japanese policymakers say the time is ripe for a coordinated, multinational strategy. Naoki Kobayashi of Japan’s trade ministry says the answer lies in shared responsibility: if countries collectively buy from non-Chinese sources, costs can fall, and supply chains can scale.
But skeptics like Mr. Terazawa, now head of an energy think tank, believe the test is just beginning. He frequently warned during his time in government that rare earths should be a foundation of U.S.-Japan collaboration. “The U.S. is a great country for sure,” he said, “but I don’t think it can deal with China effectively on its own. ”The moment of truth, he argues, has arrived. “The groundwork is there. Now we’ll see who’s really committed.”
For Japan, rare earths are no longer just a strategic abstraction. The 2010 embargo is a national memory, a crisis that sent shockwaves through government and industry. And while today’s vulnerabilities remain, Japan’s journey shows that Beijing’s rare-earth weapon can be blunted.
Not disarmed entirely, experts caution that another cutoff would still be like “getting hit by a car” instead of “falling off a cliff.” But at least, Japan can now survive the impact.
Whether the United States and Europe can replicate this balance of realism, resilience, and resolve remains to be seen. The blueprint is there. The world just needs to follow it.