Major Rally in the Nikkei Amid Rising Risks from Rare Earth Security Concerns

Nikkei Surges for the First Time in Three Days, Led by Fast Retailing

In the Tokyo stock market, the Nikkei 225 jumped by a hefty 822 points, marking its biggest gain in three days, closing just shy of 52,000 at 51,939. This rebound was fueled by a combination of factors, including a bounce back from a roughly 1,400-point dip over the past two days, a rally in the U.S. Dow Jones Industrial Average, and a weakening yen that hit around 157 yen per dollar.

Among individual stocks, Fast Retailing, which reported strong earnings the day before, soared over 10%, adding more than 450 points to the Nikkei index. Investors are feeling optimistic about corporate earnings following the earnings reports, especially in sectors sensitive to economic cycles, leading to widespread buying of stocks.

US Economic Data Boosts Investor Confidence; Yen Weakness Also Helps

The positive sentiment was partly driven by U.S. economic data showing new unemployment claims falling below expectations, signaling that the labor market is slowing but still holding steady. This upbeat report helped lift the Dow and brought a sense of relief to Japanese markets.

However, the tech-heavy Nasdaq declined for the first time in four days, and the S&P 500 remained flat, indicating some overall market indecision. Still, the ongoing yen depreciation is benefiting Japanese exporters, boosting their earnings outlook and supporting the recent rally in stocks.

Finance Minister Katayama Warns About Rare Earths as a Global Security Threat

On the geopolitical front, concerns about the security of critical minerals, especially rare earth elements, are resurfacing. Finance Minister Satsuki Katayama announced she will visit Washington next week to participate in the G7 finance ministers’ meeting focused on these vital resources.

Katayama expressed strong concern over China’s weaponization of rare earths, stating, “This is a serious threat to the global economy and a major issue for economic security.” She also criticized China’s recent restrictions on exports of military and civilian goods to Japan, calling it “very unfortunate” because it impacts global supply chains. She plans to explain Japan’s position to other countries during her visit.

Impact on Japanese Companies and Households

Rare earths are essential for manufacturing electric vehicle motors, smartphones, wind turbines, and other high-tech industries—many of which depend heavily on Chinese supplies. If export restrictions persist or tighten, costs for parts could rise, and production delays may occur, potentially hurting Japan’s manufacturing competitiveness and export growth.

During her visit, Katayama is expected to discuss ways to diversify supply sources, build strategic stockpiles, and develop alternative materials through international cooperation. While recent stock gains and yen weakness are supporting Japan’s economy now, increased supply risks could eventually impact prices, corporate profits, and household finances.

Expectations for Growth and Wage Increases Highlighted in Government Briefing

In a post-cabinet press conference, Katayama emphasized that November’s consumer spending was growing in real terms, not just nominally. She stressed the importance of creating an environment where wages can rise faster than inflation, aiming for a “year of growth and investment” in 2026. She also expressed a strong commitment to fiscal policies that encourage private investment.

Market watchers see the recent stock rally as supporting consumer spending among the wealthy through wealth effects, but the key question remains: how far will wage increases spread as inflation persists? The government, Bank of Japan, and companies are working together to sustain a positive cycle of wages and prices, which could determine Japan’s economic trajectory in the coming years.

Key Points to Watch

• How will the G7 finance ministers’ meeting address the stability of rare earth supplies?
• What specific impacts will China’s export restrictions have on Japanese supply chains and manufacturing?
• Trends in wage hikes ahead of upcoming spring labor negotiations and their effect on household spending
• How long will the yen stay weak and stocks stay high, and what does this mean for corporate profits and investment?