Summary:
Two-thirds of Japan firms expect economy to suffer from frayed China ties
Nearly half report or anticipate direct business impact
Rare-earth supply risk flagged as critical vulnerability
43% may reassess China-linked business if tensions persist
Majority back BOJ’s latest rate hike, citing yen risks
More than two-thirds of Japanese companies expect the domestic economy to suffer from deteriorating ties with China, according to a Reuters corporate survey, highlighting rising concern over geopolitics, supply chains and export exposure. Nearly half of firms said they are already seeing, or expect to see, a direct business impact from tensions with Japan’s largest trading partner.
Relations have worsened since Prime Minister Sanae Takaichi warned in November that a Chinese attack on Taiwan could pose an existential threat to Japan, a comment Beijing condemned as “provocative.” Since then, China has advised its citizens against travelling to Japan and imposed restrictions on exports of goods with potential military applications, stoking fears of tighter controls on rare-earth shipments critical to Japan’s automotive and electronics sectors.
The survey found that 9% of firms reported their business had already been affected, while a further 35% anticipate some impact. Tourism-linked sectors appear to be among the earliest casualties, with one transport operator citing falling Chinese visitor numbers weighing on hotel utilisation and room revenues. Manufacturers, meanwhile, flagged strategic vulnerability to China’s control over rare-earth processing, with one electronics executive describing policy shifts as a “matter of life and death.”
China still accounts for roughly 60% of Japan’s rare-earth imports despite years of diversification efforts. Reflecting this exposure, 43% of respondents said prolonged deterioration in bilateral relations would likely force a reassessment of China-related business, including sales, procurement and production footprints.
On monetary policy, sentiment was notably more settled. Almost two-thirds of firms judged the Bank of Japan’s latest interest-rate hike appropriate, backing the move to lift the policy rate to a 30-year high of 0.75%. Respondents broadly agreed that failing to normalise policy risks further yen depreciation, which many view as a longer-term drag on the economy. Looking ahead, opinions on the timing of the next hike were split, though most see further tightening as inevitable if growth and inflation track forecasts outlined by Kazuo Ueda.
