China's Rare Earth Exports to Japan Halved in First Half; Japan Seeks Alternative Sources

China's exports of rare earths to Japan have drastically decreased, falling by 51% in the first half of 2026 compared to the previous year, according to an analysis of Chinese customs data by Nikkei. This significant drop underscores China's strategic use of rare earths as a bargaining chip in its international relations.

The decline was particularly sharp in June, with exports to Japan plummeting by 81% year-on-year. For critical rare earth elements like dysprosium and terbium, essential for high-performance magnets used in electric vehicles, exports to Japan were reportedly zero from January to June. Similarly, exports of yttrium, used in semiconductor manufacturing equipment and aircraft engine coatings, also registered zero in June.

This tightening of exports follows China's implementation of an export licensing system for seven types of rare earths in April of the previous year. In January 2026, China further intensified export controls, citing regulations on dual-use items, which are materials that can be used for both civilian and military purposes. The Chinese Ministry of Commerce added 20 Japanese companies and organizations to its list of entities subject to dual-use item export controls in June.

In response to China's export restrictions, Japan is accelerating efforts to diversify its rare earth supply chain. The Japanese government is utilizing Official Development Assistance (ODA) to support the development of rare earth production bases in countries like Malaysia, which is estimated to have substantial rare earth reserves. Japan plans to provide equipment for geological surveys and transfer refining technologies to reduce environmental impact. Meanwhile, exports to the United States also decreased by 14% in the first half of the year, and global exports fell by 16%. Despite previous discussions between US and Chinese leaders, recent US actions, such as additional tariffs, suggest continued trade tensions, potentially bringing the rare earth issue back to the forefront of bilateral discussions.