“Rare-Earth-Free Magnets, Raw Materials From Overseas Mines”: Japan Goes All Out to Build an Independent Rare Earth Supply Chain

China’s rare earth export controls deepen uncertainty over critical-material procurement
Public-private investment converges on alternative magnets, overseas mines and domestic refining
Japan’s integrated supply chain spanning procurement, processing and recycling takes shape

Japan has embarked on a sweeping reconfiguration of its rare earth supply chain, spanning the development of substitute materials, investment in overseas mines, domestic refining and the recycling of discarded magnets. Japanese automaker Honda has invested in a company developing rare-earth-free iron nitride permanent magnets, while the Japanese government is deploying public funds to build the country’s first new refining facility in 18 years and secure equity interests in overseas mines. Tokyo has also overhauled investment rules to allow a state-backed agency to acquire interests in promising deposits without waiting for private-sector participation, accelerating the pace of resource acquisition. If G7 joint stockpiling and price-stabilization mechanisms are added to the equation, Japan is expected to become the first major manufacturing economy outside China to establish a domestically directed, integrated supply chain encompassing rare earth procurement, processing and recycling.

Mass Production of Rare-Earth-Free Permanent Magnets Targeted for 2028

According to Nikkei Asia on Sept. 11, Honda officially announced that it had completed an equity investment in U.S. magnet manufacturer Niron Magnetics through its corporate venture capital arm, Honda Xcelerator Ventures. The transaction was a standalone strategic investment conducted separately from the company’s existing venture funding round. Permanent magnets, critical components in advanced hardware such as electric vehicle motors, regenerative braking systems, smartphone actuators and industrial robots, have traditionally relied heavily on rare earth elements such as neodymium, which retain their magnetic strength at high temperatures. Niron Magnetics, however, was founded in 2013 with a grant from the U.S. Department of Energy’s Advanced Research Projects Agency–Energy (ARPA-E) and subsequently developed proprietary nanomaterial alignment technology to synthesize nanocrystalline iron nitride (Fe16N2), creating the world’s first high-performance permanent magnet containing no rare earth elements, branded the “Clean Magnet.”

Niron Magnetics is already conducting trial production of several metric tons of iron nitride magnets annually at its pilot plant in Minneapolis. In July, the company opened the way for commercialization by signing a large-scale supply agreement with Aspina, a Japanese manufacturer specializing in precision automotive motors. To meet rapidly expanding demand from global automakers, the company is now building a large-scale commercial production plant in Sartell, Minnesota. Its goal is to establish mass-production capacity capable of supplying 1,500 metric tons of rare-earth-free magnets annually by 2028.

Refineries at Home, Mining Stakes Abroad

As Honda stakes its future on next-generation magnets that eliminate rare earths, Japanese chemical company Shin-Etsu Chemical has begun expanding refining capacity for conventional rare earth magnets. Shin-Etsu Chemical plans to invest at least $227 million in a new rare earth refining facility in Fukui Prefecture, with the Japanese government subsidizing half the project cost, or $113.5 million. The project will be Japan’s first new domestic rare earth refining facility since 2008 and is intended to allow heavy rare earths rendered increasingly difficult to procure by China’s export controls to be separated and refined inside Japan. The government’s willingness to shoulder such a substantial subsidy reflects the reality that securing mining stakes offers little protection from supply disruptions if the refining process remains dependent on China. While Niron Magnetics’ iron nitride technology represents a technological solution for reducing rare earth demand, Shin-Etsu Chemical’s capacity expansion constitutes an industrial solution for converting imported feedstock into magnet materials domestically.

Japan has also invested directly in overseas rare earth mines and secured preferential offtake rights to ensure a stable supply of feedstock for its domestic refining facilities. The Japan Organization for Metals and Energy Security (JOGMEC) has established a development company with Toyota Tsusho for Namibia’s Lofdal mine and agreed to invest up to $34.5 million. Surveys indicate that the Lofdal deposit contains substantial reserves of dysprosium and terbium, which improve the heat resistance of electric vehicle motors, and the project would become the first African rare earth mine involving Japanese companies if commercialized. In Brazil, JOGMEC has also agreed to provide Canadian mining company Aclara Resources with up to $3 million in exploration funding over three years; if the exploration proves successful, JOGMEC will secure a 30% stake in the project and offtake rights exceeding its equity ownership. The contractual structure allows a state-backed institution to share the risk of exploration failure while binding output from successfully developed mines to Japan’s supply chain.

Japan Overhauls Investment Rules to Preemptively Secure Rare Earth Deposits

The Japanese government has also decided to overhaul JOGMEC’s investment rules, which have traditionally required joint investment with private-sector companies. On Aug. 20, the Ministry of Economy, Trade and Industry presented the Industrial Structure Council with a proposed institutional reform that would allow JOGMEC to partner directly with overseas resource companies regardless of whether a Japanese company participates. The framework will apply to 20 critical minerals eligible for financial support under the Economic Security Promotion Act, including rare earths, nickel and manganese.

Until now, JOGMEC could invest in an overseas mine or refining project only by co-investing with a Japanese company or entering into an agreement to transfer independently acquired interests to a Japanese company at a later date. Critical mineral development, however, requires an extended period from exploration to production, while investors must also absorb risks arising from changes of government and policy in resource-rich countries as well as abrupt declines in international prices. Concerns have consequently intensified that promising deposits could be captured by rival countries while private companies assess commercial viability. Once the new system takes effect, JOGMEC will be able to commit capital and secure project interests first, then sell those interests to Japanese private-sector companies within 10 years of production commencing. The arrangement shifts early-stage development risks to the government, easing the investment burden on private companies.

Table 1. Japan’s Rare Earth Supply Chain Diversification Strategy

China’s Supply Controls Accelerate Overseas Mining Investment

China’s supply controls precipitated the regulatory overhaul. Chinese exports of rare earth magnets to Japan totaled 111 metric tons in July, down 52.2% from a year earlier. Japan’s imports of dysprosium feedstock from China amounted to just 13 metric tons in the first half of this year, an 82% plunge from the same period in 2024, before the export restrictions were imposed. Dysprosium is a critical material that determines the heat resistance of electric vehicle traction motors and semiconductor manufacturing equipment. The prospect that prolonged procurement shortfalls could destabilize automotive, electronics and semiconductor production while the government waited for private-sector investment decisions ultimately prompted direct state investment.

Africa has emerged as a focal point in Japan’s search for new sources of supply. Although the continent holds abundant reserves of rare earths and other critical minerals, many projects lack essential development infrastructure such as mines, roads and ports, making government-level financial and diplomatic support indispensable. Japan is simultaneously expanding people-to-people exchanges to establish a broader foundation for resource diplomacy. This year, the Ministry of Foreign Affairs launched an exchange program inviting approximately 250 young people from 10 African countries, including Cameroon, and plans to provide up to $19,300 for each short-term exchange involving Japanese and African universities and companies. Because mine development requires sustained support from local governments for permits and infrastructure, the initiative appears designed to establish a foundation for government-to-business cooperation before investment begins.

Overseas mining investment is also a strategy whose effectiveness Japan has already verified since the 2010 dispute over the Senkaku Islands, known in China as the Diaoyu Islands. In 2011, JOGMEC and Japanese trading house Sojitz provided a combined $250 million in loans and equity investment to Australian rare earth producer Lynas and signed a contract securing more than 8,500 metric tons of rare earths annually for 10 years, equivalent at the time to approximately 30% of Japanese consumption. By mining ore at the Mount Weld deposit in Australia and processing it at a separation and refining facility in Malaysia, Lynas provided Japan with a light rare earth procurement network that bypassed China. Japan’s dependence on China for rare earths subsequently declined from approximately 90% to around 60%. In 2023, the Japanese government and Sojitz invested an additional $143.4 million in Lynas and secured rights for Japan to receive up to 65% of the company’s dysprosium and terbium production.

Expansion From Mining and Refining Into Recycling

The next segment Japan is adding to its supply chain is recycling rare earths from discarded magnets and electronic waste. In March, nonferrous metals and materials company Mitsubishi Materials acquired preferred shares in U.S. rare earth recycling company ReElement Technologies and signed a memorandum of understanding (MOU) on U.S.-Japan cooperation in rare earth and rare metal recycling. ReElement’s chromatography-based technology can separate rare earths from discarded magnets, batteries and electronic scrap at purity levels exceeding 99.5% and recovery rates above 95%. Mitsubishi Materials is also examining the feasibility of a joint venture in Japan by combining its collection networks for discarded appliances and end-of-life vehicles with its metal pretreatment technology. Successful commercialization would establish a supply base capable of using both feedstock imported from overseas mines and recycled materials recovered in Japan.

International coordination has focused on stockpiling and price-stabilization mechanisms. The Japanese government proposed joint G7 rare earth stockpiles in June, and G7 leaders agreed to expand stockpiling capacity, share institutional frameworks and release protocols, and establish a supply-crisis early-warning system through the International Energy Agency (IEA). They also set targets of reducing dependence on any single supplier outside the G7 and its partner countries for rare earths and permanent magnets to below 60% by 2030 and, as early as practicable, to 50%. If joint purchasing and price floors materialize, they could prevent non-Chinese mines and refineries from becoming commercially unviable under pressure from low-priced Chinese supply while enhancing the durability of long-term supply contracts.

The United States and the European Union (EU) are also expanding mining investment and refining subsidies, but Japan holds an advantage rooted in its experience of deploying government financing, long-term purchase agreements and private-sector technology investment in tandem since the 2010 rare earth crisis. Once its previously secured overseas mines and domestic refining facilities are integrated with recycling and joint-stockpiling systems, Japan is likely to become the first major manufacturing economy outside China to establish a domestically directed, integrated supply chain encompassing rare earth procurement, processing and recovery. Japanese automotive, electronics and semiconductor companies that have long endured production disruptions dictated by China’s export licensing and pricing policies are consequently expected to gain access to multiple procurement channels.