Beyond Aid and Trade: Japan, Mongolia, and the Critical Minerals Opening

Japan is widely hailed as a model for supply chain resilience in rare earth elements (REEs), leading advanced economies in research and development (R&D) investment as a percentage of GDP and other long-term efforts to “de-Chinafy” its REE supply chain. Following Beijing’s 2010 export restrictions in response to the Senkaku/Diaoyu fishing boat incident, Tokyo launched a multifaceted strategy to diversify its supply sources, including investments in overseas mining projects. In 2025, Japan sourced 66 percent of its REEs from China, down from 93 percent in 2009.

However, China’s recent export restrictions on dual-use items, including REEs and other critical minerals, following Prime Minister Takaichi’s comments on a Taiwan contingency, have renewed concerns and prompted the Japanese government to redouble diversification efforts across REE and critical minerals supply chains. Tokyo has advanced key initiatives overseas that go beyond purchasing raw materials to building new processing capacity outside China, which currently controls 90 percent of global capacity. As Japan searches for new collaborators in critical minerals, its technological and financing capabilities may be a well-suited match for the resource endowment of Mongolia, a longtime but underutilized economic partner.

Mongolia's Resource Landscape and the Processing Gap

Mongolia holds an estimated $1–3 trillion in untapped mineral reserves, including significant deposits of copper, fluorspar, coal, and REEs. The challenge is not access to deposits but the absence of domestic processing capacity. Approximately 88 percent of Mongolian minerals leave the country unprocessed, with the vast majority bound for China. This pattern highlights the primary choke point in global REE supply chains, where limited mid- and downstream capacity creates structural dependence on countries better equipped with the vital infrastructure and technological know-how.

Mongolia's "Third Neighbor Policy" prioritizes greater economic and diplomatic ties with developed democracies to achieve strategic autonomy from its immediate neighbors of China and Russia. Redirecting exports to alternative buyers is a meaningful but insufficient step in this endeavor. Attracting investment and technology transfer in REE processing and refining from partners such as Japan is essential for Mongolia to capture more value, as processed and refined minerals command substantially higher prices than raw ore. Over time, this momentum may help expand Mongolia’s largely mining-based economy into artificial intelligence, clean energy, defense, and other downstream strategic sectors.

Existing Japan–Mongolia Frameworks

Japan has long been Mongolia's largest bilateral aid donor and became its first Economic Partnership Agreement counterpart in 2016. Tokyo supports Mongolia through soft loans and technical assistance via the Japan International Cooperation Agency (JICA), and in 2022, the two governments upgraded ties to a "Special Strategic Partnership for Peace and Security". The 2022–2031 Action Plan underpinning this partnership explicitly commits both sides to "cooperation to ensure a long-term, stable supply of Mongolian copper, REEs, and other mineral resources to Japan, and cooperation to revitalize the supply chain."

The institutional foundation is thus well-established for cooperation in new domains, including processing and refining REEs and other critical minerals. A 2016–2022 JICA capacity-building project on Mongolia's mining sector generated baseline recommendations for scaling up midstream capabilities, but has not yet produced concrete commercial deals or infrastructure projects. 

The Japan–Mongolia Opening and Structural Challenges

In the long term, resilient REE and critical minerals supply chains require upstream exploration and extraction, as well as midstream processing and refining, before reaching downstream markets. Mongolia possesses the former in abundance; Japan has a strident advantage in the latter through its magnet, chemical, and materials industries. Japan has already seen success in developing processing facilities overseas through loans and equity stakes, as demonstrated most prominently in the Japan Organization for Metals and Energy Security (JOGMEC)-led operations in Malaysia that separate REE oxides for Japanese manufacturing use. Through JOGMEC and related entities, Japan is cultivating overseas processing hubs, opening the door for Mongolia to host high-value facilities using its domestic mineral resources and Japanese expertise. 

Any expansion of Japanese investment in Mongolian mineral processing would face real barriers. Under Mongolia's Constitution and Land Law, foreign nationals and majority foreign-owned companies cannot freely transfer, collateralize, or sell land-use rights, even though they may obtain such rights, complicating the financing and structuring of large-scale processing facilities. As a landlocked country, Mongolia’s dependence on air and overland routes through China and Russia presents unavoidable logistical constraints, compounded by the risk of economic retaliation or coercion from its largest trading partner if it shifts closer to Japan. In this complex legal and geopolitical landscape, Japan's existing EPA and JICA frameworks may offer pathways unavailable to purely commercial investors. Converting these institutional advantages into tangible projects, however, will remain a key challenge.

A Broader Minilateral Context

Japan’s efforts in this space complement those by the United States, which has engaged in various dialogues, memoranda of understanding (MOUs), and partnerships with Mongolia aimed at promoting secure and resilient critical minerals supply chains in the Indo-Pacific. Mongolia is geographically proximate to both Japan's industrial base and existing supply routes, holds significant untapped deposits, and already has formal partnership frameworks with both Tokyo and Washington. Therefore, Mongolia could be integrated into U.S.–Japan bilateral initiatives, particularly those focused on identifying and investing in prospective processing and refining hubs. Some examples include the 2025 Framework For Securing the Supply of Critical Minerals and Rare Earths, the 2026 Action Plan on Critical Minerals to develop strategic trade policies and border mechanisms to mitigate supply chain vulnerabilities, and public–private partnerships such as JOGMEC’s MOU with U.S. firm REAlloys to develop REE processing technologies and build joint supply chains. 

Existing minilateral frameworks also present avenues for activating Japan–Mongolia cooperation. Mongolia recently attended the 2026 Critical Minerals Ministerial hosted by the United States, which saw the launch of the Forum on Resource Geostrategic Engagement (FORGE), the successor to the Minerals Security Partnership, to which Japan is a signatory. Mongolia and Japan could leverage coordination tools offered by forums such as FORGE to align policies and manage cross-border projects. These pathways suggest that Mongolia is not merely a passive supplier of raw materials but a plausible partner in emerging minilateral critical minerals architectures. 

Looking Ahead

As Japan pursues further diversification and resilience in its critical minerals supply chains and Mongolia seeks to move up the value chain, the two countries' complementary strengths and existing institutional frameworks suggest that deeper cooperation is a logical next step. Whether Tokyo and Ulaanbaatar move to activate these frameworks in the near term will depend on political will, structural feasibility, and commercial viability—questions that the robust bilateral relationship is well positioned to address.