By Jason Chau

Defense and heavy machinery stocks fell in Japan on Tuesday after China added 40 Japanese entities to export control and monitoring lists.

China's commerce ministry announced the measures amid heightened tensions between Beijing and Tokyo.

In a statement, it said 20 Japanese companies have been added to an export control list that prohibits Chinese firms from selling them dual-use items that could have military applications. Those added included affiliates from Mitsubishi Heavy Industries and IHI Corp.

Another 20 Japanese firms were put on a watch list that would subject exporters to tighter scrutiny when providing dual-use goods to the named companies.

The move triggered a selloff among some defense stocks in Tokyo.

Shares of Mitsubishi Heavy fell 3.9%, while Kawasaki Heavy Industries--which was also put on the export-control list--fell 5.1% and IHI was down 6.7%.

Fujitsu and NEC Corp., both of which have affiliates included on the lists, saw their shares fall 9.2% and 6.4%, respectively. A selloff in software stocks triggered by investor anxiety over artificial-intelligence advancements also weighed.

Subaru Corp., which was included in the watch list, was also down 3.3%.

IHI said in an emailed statement that it is currently verifying the facts and will continue to monitor the situation closely.

The other companies didn't immediately respond to requests for comment.

Japan has been locked in a months-long diplomatic feud with China after Prime Minister Sanae Takaichi said late last year that Tokyo may be pulled into any conflict over Taiwan.

In early January, China banned exports of goods for military use to Japan.

Tuesday's selloff in Japan defense stocks could also be attributed in part to already-high sector valuations, analysts say, after Takaichi's recent electoral victory firmed expectations of more defense spending.

"There was a lot of expectation already priced in for the heavies as part of the Takaichi trade and they were extremely crowed up here, so it was very easy to cause a pullback, despite the China news being somewhat expected," said Andrew Jackson, head of Japan equity strategy at Ortus Advisors.

--Megumi Fujikawa contributed to this report

Write to Jason Chau at jason.chau@wsj.com

(END) Dow Jones Newswires

February 24, 2026 01:04 ET (06:04 GMT)

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