Japanese business confidence improved markedly in August, according to the latest Reuters Tankan survey, as manufacturers benefited from robust semiconductor demand while non-manufacturers were supported by resilient domestic consumption.

The manufacturers' sentiment index rose to plus 18 in August from plus 13 in July, reaching its highest level since March 2026. Non-manufacturers' confidence also strengthened, climbing to plus 28 from plus 25 over the same period.

The August poll was conducted between 29 July and 6 August, drawing responses from 219 of the 510 firms surveyed. As with the Bank of Japan's official Tankan, the index is calculated by subtracting the proportion of pessimistic responses from optimistic ones, meaning a positive reading signals net optimism among respondents.

Semiconductor Demand Drives Manufacturing Gains

Semiconductor-related industries were the clearest driver of the manufacturing improvement, with the gains broadening across Japan's industrial base rather than remaining concentrated among a narrow set of chipmakers. The chemicals sub-index jumped to plus 33 from plus 23, while the metal and machinery industry index surged to plus 25 from plus 12.

The breadth of the gains reflects Japan's integral position in the global semiconductor supply chain. Japanese firms are among the world's leading suppliers of chipmaking materials — including silicon wafers, photoresists, and specialty gases — as well as semiconductor manufacturing equipment, which is why chemicals and machinery sub-indices tend to move in tandem with global chip demand cycles.

One machinery maker manager quoted in the survey said strong demand for semiconductor-related products was driving robust order intake. A respondent from the precision machinery sector reported that orders had improved markedly since April, both domestically and overseas, describing current order volumes as roughly double the norm and calling the situation unprecedented.

The fact that the manufacturers' index has reached its best level since March suggests the earlier drag from global trade uncertainty has largely faded for exporters tied to chip demand.

Transport equipment was the notable laggard, holding flat at zero and reflecting ongoing mixed conditions across the automotive sector. The divergence is notable because transport equipment encompasses Japan's globally dominant automakers — the country's single largest manufacturing industry by revenue — meaning that while semiconductor-linked industries are experiencing a boom, the auto sector has not shared in the recovery.

Services Sector Shows Broad-Based Strength

On the non-manufacturing side, the improvement was broad-based rather than concentrated in a single sector, with gains reported across wholesale trade, information services, and other service categories. This reinforces the picture of resilient domestic demand supporting the non-manufacturing index near its highs.

Outlook Signals Cautious Optimism

Looking ahead, manufacturers expect some softening, with the index forecast to ease to plus 16 in November — a reading that suggests a degree of caution about the business outlook even as current conditions remain firm. Non-manufacturers, by contrast, expect their index to hold steady at plus 28 over the same period. This nuance is likely to feed into expectations for the Bank of Japan's own quarterly Tankan, due in the coming weeks.

Reuters Tankan versus the BOJ's Quarterly Tankan

The Reuters Tankan and the Bank of Japan's official Tankan measure the same underlying concept — business sentiment among Japanese firms — using the same diffusion index methodology of subtracting the share of pessimistic responses from optimistic ones. Both surveys split results between manufacturers and non-manufacturers and both ask firms for a near-term outlook alongside their assessment of current conditions, which is why the Reuters poll is closely watched as an early read on where the official figures are likely to land.

The key differences are frequency, scale, and timing. The Reuters Tankan is conducted monthly and polls a smaller panel — several hundred firms rather than the BOJ's much larger sample of several thousand companies — so it trades some statistical depth for speed. Because it is published well ahead of the BOJ's quarterly release, it functions as a rolling proxy that can pick up shifts in sentiment, such as the semiconductor-driven improvement seen this month, before they show up in the official data.

The BOJ Tankan, released only four times a year, remains the more comprehensive and closely scrutinized gauge for actual policy decisions, including its influence on market expectations for interest rates. However, the monthly Reuters version gives traders and analysts a more frequent pulse check between those quarterly readings.

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