A shortage of critical minerals is starting to affect the broader Japanese economy, adding a sense of urgency for Prime Minister Sanae Takaichi's government to find alternatives to exports that China has cut off, according to recent corporate filings.China dominates the global market for rare earths – which are crucial in making items from electric cars to weapons – and it is using those supplies as a diplomatic cudgel.
Since Takaichi enraged Beijing with comments about defending Taiwan in November, Beijing has choked off shipments of certain key minerals to Japan.
Recent surges in the Nikkei stock index to successive records and buoyant corporate sentiment in the Bank of Japan's Tankan survey point to an economy on an upswing. But an unprecedented increase in corporate Japan's notices about critical minerals is flashing a warning signal for the quarters ahead.
Japan's economy took a hit to the tune of about 0.9 percent of GDP in 2010 during a bout of trade restrictions by China, but the effect could be worse this time around now that rare earths have grown in importance in a variety of supply chains, said Takeshi Higashifukasawa, chief economist at Mizuho Research Institute.
"With the development of AI, rare earths are being used across a broad range of goods and throughout supply chains," Higashifukasawa said, noting that electric vehicles have entered the fray since then. "Companies cannot afford to be optimistic."
