China tops Japanese public’s security worries in latest government poll

A Japanese government poll of 1,534 respondents found 68% now view advances in Chinese military technology and activities near Japan/South China Sea as their top security concern (up from 61% in 2023), while 94% expressed favorable views of the Self-Defense Forces. The five-week survey began Nov. 6, 2025 amid a diplomatic rift after Prime Minister Sanae Takaichi's comments; Beijing has threatened rare-earth export restrictions and staged nearby drills. Tokyo is preparing a new defence plan and is moving to double defence outlays to 2% of GDP, a development likely supportive for defense contractors but heightening supply-chain and geopolitical risk for investors exposed to rare-earths and regional trade links.

Analysis

Market structure: Rising Japanese public anxiety and an expected permanent lift in defense spending (targeting ~2% of GDP) structurally favors defense primes and non-Chinese strategic miners. Winners: Lockheed (LMT), Raytheon (RTX), Northrop (NOC) and listed rare-earth plays (MP, LYC/REMX) as pricing power in specialty magnets and munitions increases; losers: Japan travel, tourism-linked services and exporters with heavy China exposure may see revenue downgrades if Beijing enacts consumer/travel boycotts or rare-earth curbs.

Risk assessment: Tail risk includes kinetic escalation around Taiwan or aggressive Chinese export controls on rare earths—low probability but could spike rare-earth prices >50% and disrupt semiconductor/EV supply chains within weeks. Immediate impact (days) = volatility in FX and equities; short-term (weeks–months) = defense contract rerating and supply-chain rerouting; long-term (quarters–years) = capex in alternative mining and permanent reallocation of Asian supply chains. Hidden dependency: many global OEMs’ EV/defense supply chains depend on a handful of Chinese processors and separation plants.

Trade implications: Tactical longs in defense primes and selective rare-earth miners, funded by hedged short exposure to Japan tourism/consumer names and EWJ put spreads, are attractive over 3–12 months. Use call spreads on LMT/RTX to limit premium, allocate 2–4% portfolio to miners/ETFs on confirmed Chinese export restrictions, and trim JGB duration as fiscal-driven supply expands.

Contrarian angles: Consensus bets on JPY safe-haven may be overstated—domestic fiscal expansion to 2% GDP suggests higher JGB issuance and medium-term yen weakening, creating a 3–12 month divergence between FX moves and spot risk-off flows. Also expect a historical pattern (2010 rare-earth spike then normalization): initial price shock will attract rapid capex which can cap multi-year upside in miners, so size positions with a 12–24 month view.

Key Decisions for Investors

• Establish a 2–3% portfolio long split among defense primes: LMT, RTX, NOC (approx. 0.7–1.0% each) over next 4–8 weeks. Add +1% if Japan's defence whitepaper is published confirming 2% GDP target or if a US-Japan procurement announcement occurs. Target +15–25% in 12 months; stop-loss 10%.
• Initiate a 2% position in rare-earth exposure: 1% MP Materials (MP) + 1% Lynas (LYC.AX) or 1–2% REMX ETF as a simpler alternative. Add another 1% if China announces export curbs or rare-earth price indices rise >15% in 30 days. Target 30%+ in 12 months; protective stop 15%.
• Buy a tactical 3-month EWJ put spread sized to 1% of portfolio (buy ~5% OTM put, sell ~10% OTM) to hedge/short Japan tourism and consumer exposure; increase to 2–3% if inbound tourism falls >20% YoY or if travel advisories escalate. Exit or roll after 3 months or on clear de-escalation.
• Reduce JGB duration exposure by 15–25% over the next 3 months by selling 10Y JGB futures or buying short-dated inflation-adjusted protection; simultaneously purchase 6-month USD/JPY put protection sized to ~50% of Japan equity exposure if JPY rallies >3% in 2 weeks. Reassess after Japan’s defence budget passage.