TOKYO, Jan 7 (Reuters): Japan called China's ban on dual-use exports for its military "absolutely unacceptable" on Wednesday, amid a looming threat of broader curbs on vital rare earths in an escalating dispute between Asia's top two economies.

Dual-use items are goods, software or technologies that have both civilian and military applications, including certain critical minerals essential for making drones and chips.

Japanese Prime Minister Sanae Takaichi touched off the dispute late last year by saying a Chinese attack on democratically-governed Taiwan could be deemed an existential threat to Japan. China regards Taiwan as part of its territory, a claim the island rejects.

Beijing has demanded she retract the remarks, which she has not done, prompting a series of countermeasures, the latest of which was Tuesday's ban on exports to military users or for any purposes that contribute to Japan's military strength.

"A measure such as this, targeting only our country, differs significantly from international practice, is absolutely unacceptable and deeply regrettable," said Japan's top government spokesman, Chief Cabinet Secretary Minoru Kihara.

At a daily press conference on Wednesday, he declined to comment on the possible impact on Japanese industry, saying it remained unclear exactly what items would be targeted.

Japan's Nikkei share index fell about 1% on Wednesday, bucking a trend of record highs in U.S. and European benchmarks.

Stocks of major military contractors Kawasaki Heavy and Mitsubishi Heavy were among the biggest losers, down about 2%.

Photo from Reuters