China rare earth exports to Japan rebound but shortages loom

China's exports of rare earth permanent magnets to Japan showed a modest recovery in April, rising 2.5 percent month-over-month after a 17.3 percent collapse in March, according to Chinese customs data released Wednesday. The rebound only partially offsets the previous month's steep decline and comes amid mounting concerns among Japanese manufacturers who are warning of "severe" shortages. China is the world's largest supplier of permanent magnets, which are critical components for electric vehicles and advanced weaponry, among other high-tech products. Japan ranked just ninth among buyers of Chinese permanent magnets in April, with Germany, South Korea, and the United States comprising the top three destinations. The trade slowdown coincides with an ongoing diplomatic dispute between Beijing and Tokyo that erupted in November when Japanese Prime Minister Sanae Takaichi suggested a hypothetical attack on Taiwan could constitute an "existential threat" to Japan. In January, China banned exports of "dual-use" items with potential military applications to Japan, a move that included rare earth elements and products such as drones and advanced semiconductors. Meanwhile, Japan's broader economic picture presents a mixed picture: exports climbed 14.8 percent in April, the fastest pace since January, beating expectations of 9.3 percent growth, while imports increased 9.7 percent year-on-year. The economic tensions unfold as Japan's private sector faces intensifying cost pressures linked to the Middle East conflict. Manufacturing activity slowed slightly in May, with the S&P Global flash PMI falling to 54.5 from 55.1 in April, though it remained in expansion territory. The services sector ground to a halt for the first time in over a year, with its PMI index dropping to 50.0. Japanese companies raised selling prices at the sharpest rate in nearly 19 years of data collection in response to surging input costs, with the composite PMI falling to 51.1, marking the softest expansion in five months. S&P Global's Annabel Fiddes warned that if cost pressures continue to mount and demand softens, business confidence and the broader economy could face greater strain in the coming months.