China Blocks Exports to Japanese Defense Sector in Response to Remilitarization

China's Ministry of Commerce announced the introduction of unprecedented restrictions on trade in dual-use goods with Japanese companies. The restrictions covered a total of 40 entities, with 20 placed on a blacklist with a complete export ban. Among those penalized are entities from the Mitsubishi Heavy Industries group and the Japanese space agency JAXA. Other firms, including Subaru Corporation, have been placed on a watch list, requiring them to obtain rigorous, case-by-case import permits from China. Beijing argues these radical steps are necessary to halt Japan's alleged remilitarization and its nuclear ambitions under the new administration. Japan-China relations have remained difficult since the end of World War II, further burdened by territorial disputes over the Senkaku (Chinese: Diaoyu) Islands and historical grievances related to the occupation of China by the Imperial Army.Despite economic pressure from Beijing, Tokyo does not intend to abandon plans to strengthen its southern flank. The Japanese Minister of Defense confirmed plans to strengthen the defense of Yonaguni Island, located just 110 kilometers from the coast of Taiwan, where a missile unit is to be deployed as part of military infrastructure expansion. This decision is part of a larger Japanese defense strategy that envisions the installation of surface-to-air and surface-to-sea missiles on islands distant from the main archipelagos. The trade conflict has resonated widely in financial markets, causing a weakening of the yen and declines in the share prices of defense and technology sector companies on the Tokyo Stock Exchange. Japan's internal situation is also becoming more complicated fiscally. The Bank of Japan is under political pressure, and markets are speculating about Prime Minister Takaichi's stance on monetary policy following her February meeting with Governor Ueda. Investors are closely watching the relationship between the government and the central bank, which, combined with geopolitical uncertainty, has impacted the volatility of the yen, which weakened in February 2026 compared to January levels. The Tokyo government has officially protested the Chinese sanctions, calling them actions undermining the freedom of international trade and appealing for the credibility of market mechanisms to be preserved. Japan's pacifist constitution from 1947, imposed by the US after the war, limited the role of the military to self-defense only, but interpretations of these provisions have undergone significant evolution in the last decade.„I voiced concern to Governor Ueda over further rate hikes.” — Prime Minister of Japan, representing a hawkish political line towards China. This situation places Japan in a difficult position: on one hand, it must modernize its defense capabilities in the face of China's growing assertiveness, while on the other, it remains deeply dependent on supplies of Chinese technological components essential for the functioning of that very industry.