Japan's Takaichi Seeks China Dialogue as Rare Earth Restrictions Bite

Highlights

• China has restricted rare earth exports to Japan including yttrium, terbium, gallium, and dysprosium following diplomatic tensions over Taiwan comments.
• China controls roughly 90% of global rare earth refining capacity, giving Beijing powerful geopolitical leverage over Japan's industrial supply chains.
• Diplomacy alone cannot solve Japan's vulnerability; long-term solutions require ex-China separation capacity, recycling, and strategic stockpiles.
• November's APEC summit in China could provide a meeting point for PM Takaichi and Xi Jinping, but no breakthrough is expected.
• Investors should watch terbium, dysprosium, and yttrium shipment flows as the real indicator of diplomatic progress, not political optics.

Japanese Prime Minister Sanae Takaichi is cautiously reopening dialogue with Beijing ahead of November's China-hosted APEC summit after relations deteriorated following her November 2025 comments about a potential Taiwan contingency. China responded politically, militarily, and economically—including restrictions affecting rare-earth exports to Japan. Takaichi has refused to retract her remarks but insists Japan's formal Taiwan policy remains unchanged. Now business groups and politicians are returning to China. The question for investors is whether diplomacy can reopen mineral flows without leaving Japan exposed to the same lever next time.

REEx Insight | Tokyo Has Seen This Movie Before

Japan learned the rare-earth dependency lesson after its 2010 confrontation with China. Sixteen years later, Beijing still possesses powerful leverage. Recent Chinese shipments to Japan of yttrium, terbium, gallium, and dysprosium have plunged, while China retains roughly 90% of global rare-earth refining capacity.

That creates an uncomfortable paradox. Dialogue may restore supply—and Japanese manufacturers need it—but normalization does not eliminate the underlying vulnerability.

REEx interpretation: China's ability to tighten strategic-material flows during a diplomatic dispute effectively converts midstream industrial dominance into geopolitical leverage. Japan's long-term answer therefore cannot simply be better diplomacy. It requires more Lynas-style ex-China separation, heavy-rare-earth capacity, metals, magnets, recycling, and strategic inventories.

Rare Earths Become the Messenger

The Diplomat's Kawashima Shin argues that Tokyo is signaling openness (opens in a new tab) without changing its fundamental Taiwan position. Foreign Minister Toshimitsu Motegi approached China's Wang Yi in July, while Japanese business and parliamentary delegations are preparing China visits. Yet there is no breakthrough. November's APEC meeting could provide Takaichi and Xi Jinping an opening.

For investors, ultimately we watch terbium, dysprosium, and yttrium flows, not diplomatic choreography.