* Halt in China imports could cut Japan GDP by more than

0.9%, Mizuho says

* Dozens of companies flagged rare-earth risks in May and

June

* Tokyo pursuing allied supply deals, recycling and deep-sea

projects

By Satoshi Sugiyama and Hina Suzuki

TOKYO, July 7 (Reuters) - A shortage of critical minerals is

starting to affect the broader Japanese economy, adding a sense

of urgency for Prime Minister Sanae Takaichi's government to

find alternatives to exports that China has cut off, according

to recent corporate filings.

China dominates the global market for rare earths - which

are crucial in making items from electric cars to weapons - and

it is using those supplies as a diplomatic cudgel.

Since Takaichi enraged Beijing with comments about defending

Taiwan in November, Beijing has choked off shipments of certain

key minerals to Japan.

Recent surges in the Nikkei stock index to successive

records and buoyant corporate sentiment in the Bank of Japan's

Tankan survey point to an economy on an upswing. But an

unprecedented increase in corporate Japan's notices about

critical minerals is flashing a warning signal for the quarters

ahead.

Japan's economy took a hit to the tune of about 0.9% of GDP

in 2010 during a bout of trade restrictions by China, but the

effect could be worse this time around now that rare earths have

grown in importance in a variety of supply chains, said Takeshi

Higashifukasawa, chief economist at Mizuho Research Institute.

"With the development of AI, rare earths are being used

across a broad range of goods and throughout supply chains,"

Higashifukasawa said, noting that electric vehicles have entered

the fray since then. "Companies cannot afford to be optimistic."

Chinese customs data last month showed there were no exports

to Japan of terbium or dysprosium oxide from November through

May and minuscule shipments of yttrium oxide since December,

cutting off supplies critical to making powerful magnets.

Regular filings to the Tokyo Stock Exchange over the past

decade typically had fewer than 40 mentions of rare earths per

month, with most concentrated in the materials and industrial

sectors. But such notices have doubled since May and are now

increasingly cited as risks by consumer and electronics firms.

More than two-thirds of nearly 200 filings in May and June

that mentioned rare earths said export controls were affecting

their business negatively or could do so in the future.

"Should restrictions on the export of rare earths or similar

measures persist for an extended period, this could affect the

group's production activities and financial performance,"

watchmaker Citizen Watch ( CHCLF ) said in one such warning on

June 23.

In response to Reuters questions, Citizen Watch ( CHCLF ) said rare

earths are mainly used in motors, but they had not affected

production or earnings, adding it did not currently expect to

revise earnings forecasts because of rare-earth-related supply

risks or China's export controls.

Omron ( OMRNF ), a maker of medical devices, cited on June 22

China's export restrictions on rare earths as part of its

broader assessment of geopolitical risks, alongside conflicts in

Ukraine and the Middle East. However, the impact of China's

export controls on production and earnings was not significant

at present, the company said, adding it does not procure rare

earths directly, though some purchased components contain

materials that use them.

While the pain is not being evenly felt across industries,

it is spreading, said Satoru Yoshida, a commodities analyst at

Rakuten Securities, attributing the divergence to how much

supply companies built up before Beijing tightened the screws.

"Supply is being restricted, but everyone is starting to use

them - and that only makes them even rarer," Yoshida said,

adding that China controlled roughly 70% of rare earth

production and 60% of reserves as of 2025.

SUPPLY SEARCH

Tokyo has been racing to line up alternatives. In a

statement, Japan's industry ministry said it is using

investments and subsidies to work with allies and companies to

secure stable supplies of rare earths and other critical

minerals.

Takaichi signed a framework with U.S. President Donald Trump

in October to coordinate on critical minerals and rare earths,

including joint stockpiling and rapid-response supply

arrangements. And the two governments have discussed joint

development of deep-sea deposits; commercial-scale output,

however, remains years away.

Takaichi is also banking on a plan agreed to by Group of

Seven nations in June to step up coordination of stockpiles, and

Japan has also begun some rare-earth recycling projects.

But when those efforts will come online and how much they

can yield remain unclear, said Yuriy Humber, CEO of Tokyo-based

Yuri Group, a consultancy.

"I assume that a year of export restrictions will create big

problems and we're four to five months into that," Humber said.

"Obviously, the government wants to keep the issue under wraps

so as not to cause panic and give China the early win."