What is the Nikkei 225 index?

It is a price-weighted index composed of Japan’s top 225 blue-chip companies traded on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average (DJIA) Index in the United States. At the very top of the Nikkei, market capitalizations are dominated by Toyota Motor Corporation, SoftBank Group and NTT Docomo, which at the time of writing have a total cap of 21T Yen, 11T Yen and 8T Yen, respectively. For those not familiar with the Yen, that amounts to GBP£270 billion or US$357 billion.

  1. Index funds are offered by major institutions, meaning that you are investing your funds with the institution themselves, rather than the actual Nikkei 225.
  2. This means that companies with higher stock prices have a more significant influence on the index’s value, regardless of their total market capitalization.
  3. These include buying shares in individual companies included in the Nikkei, purchasing a Nikkei index fund or exchange-traded fund (ETF), or trading futures and options contracts based on the Nikkei index.
  4. The composition of the Nikkei 225 and the weighting of the shares included in it are reviewed once annually and adjusted when necessary.
  5. Initially, the TSE was founded as a marketplace for the exchange of bonds the government had issued to samurai.

DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material. Make sure you follow the live Nikkei 225 price with our interactive price chart, and keep up to date with the latest Nikkei 225 news and analysis. Our analyst articles offer in-depth insights on the Nikkei 225 and its constituent stocks to inform your trading. The Nikkei 225 is the Japanese stock market index that features the most prominent businesses in the Japanese economy.

These indicators are just vital pieces of data for the outlook of the country’s financial sector; they also influence the health of a country’s economy as a whole. Some of these indicators include gross domestic product, interest rates, government regulations and fiscal policies, deflation, and unemployment rate. Nikkei 225 comprises companies that rely on high levels of business activity to generate revenue; hence, any of these indicators can directly affect the index’s price. First and foremost, tracking the performance of more than 3,500 companies would be a logistical nightmare, especially when one considers the amount of trading that occurs on a daily basis. However, and perhaps more importantly, the vast majority of the Japanese stock marketplace is dominate by the companies sat at the very top of the market capitalization rankings.

This responsibility falls to the Japanese business newspaper, Nihon Keizai Shimbun (Nikkei), which calculates and oversees the index. The Nikkei average has deviated sharply from the textbook model of stock averages, which grow at a steady exponential rate. During the Japanese asset price bubble, the average hit its bubble-era record high on 29 December 1989, when it reached an intraday high of 38,957.44, before closing at 38,915.87, having grown sixfold during the decade. TOPIX, on the other hand, uses the capitalization-weighted method for all the stocks in the TSE’s first section. The Nikkei is short for Japan’s Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks.

Historical Performance of Nikkei

It is not possible to directly purchase an index, but there are several exchange-traded funds (ETFs) whose components correlate to the Nikkei. ETFs that track the Nikkei and trade on the Tokyo Stock Exchange include Blackrock’s iShares Nikkei 225 and Nomura Asset Management Nikkei 225 Exchange Traded Fund. The MAXIS Nikkei 225 Index ETF is a dollar-denominated fund that trades on the New York Stock Exchange. Initially, the TSE was founded as a marketplace for the exchange of bonds the government had issued to samurai. In addition to government bonds, the TSE also acted as an exchange for gold and silver currencies.

Foreign investors are playing an important role in the market’s rise.

The Tokyo Stock Exchange re-opened on May 16, 1949, under the aegis of the Securities Exchange Act. Formerly called the Nikkei Dow Jones Stock Average (from 1975 to 1985), it is now named after the Nihon Keizai Shimbun or Japan Economic Newspaper, commonly known as Nikkei, which sponsors the calculation of the index. Among the best-known companies included in the Nikkei index are Canon Incorporated, Sony Corporation, and Toyota Motor Corporation. Stocks in Japan rose to a record high on Thursday, surpassing a level last seen 34 years ago when the country was at the peak of its economic ascendancy, before it sank into decades of low growth. One of the most prominent Nikkei ETFs is that of the Nikkei 225 Exchange Traded Fund offered by Nomura Asset Management.

Words Near Nikkei in the Dictionary

Launched back in 1950, the Tokyo Stock Exchange is the largest stock exchange in Japan, and the fourth largest in the world by market capitalization. Located in the capital city of Tokyo, the stock exchange lists more than 3,500 companies across multiple industries. The Nikkei is influenced by a variety of factors, including Japanese economic policies, global economic events, fluctuations in the Japanese Yen, and the performance of its constituent companies. These include buying shares in individual companies included in the Nikkei, purchasing a Nikkei index fund or exchange-traded fund (ETF), or trading futures and options contracts based on the Nikkei index. This methodology differs from other indices, such as the S&P 500, which are market-capitalization-weighted and consider the size of a company based on its market capitalization rather than its stock price.

The Nikkei is a price-weighted index, meaning it’s calculated based on the stock prices of its component companies. The total value of the index is the sum of the stock prices of all 225 companies, https://forexhero.info/ adjusted by a divisor for stock splits and other corporate actions. The Nikkei 225 index remains an essential index in the Asian economy and mirrors that of other economies worldwide.

Well, Nihon Keizai Shimbun is the formal name of the Nikkei, one of the largest media houses in Japan. But that’s not all, it is also the world’s largest financial newspaper, with a daily circulation exceeding 3 million. Japan’s stocks have also benefited from a downturn in China, where economic growth has slowed under the weight of a plunge in real estate and a host of systemic and political challenges. Chinese markets have recently traded at low points that hadn’t been reached since a rout in 2015.

As the name suggests, Nikkei 225 comprises 225 of the largest and most liquid companies listed on the Tokyo Stock Exchange. It is a price-weighted index, meaning that the stock prices of the constituent companies determine their influence on the index. The Nikkei Index, or Nikkei 225, uses a unique calculation methodology to determine its value. As a price-weighted index, it primarily considers the stock prices of its component companies, as opposed to market capitalization.

In addition to boosting the currency, the government can make extensive changes to monetary and fiscal policies. These include increasing or decreasing interest rates, which has a significant impact on businesses across the country. The Tokyo Price Index—frequently referred to as TOPIX—is another widely followed td ameritrade forex review index on the Tokyo Stock Exchange. While the Nikkei is an index of 225 selected stocks from the TSE, the TOPIX is an index that includes all the stocks in the TSE. In 1943, during the Second World War, the Japanese government combined the TSE with five others to form a single Japanese Stock Exchange.

Someone on our team will connect you with a financial professional in our network holding the correct designation and expertise. Our goal is to deliver the most understandable and comprehensive explanations of financial topics using simple writing complemented by helpful graphics and animation videos. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. A weaker Yen generally boosts the Nikkei because it makes Japanese exports more competitive, thereby improving the earnings prospects of Japanese multinational companies.

The healthcare sector is another crucial component of the Nikkei index, with leading pharmaceutical companies like Takeda Pharmaceutical and Daiichi Sankyo featuring in the index. Their performance can often be indicative of the overall health of the Japanese economy. Major banks and financial institutions, such as Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group, contribute to the financial services sector’s representation in the Nikkei index.

Furthermore, some index funds or ETFs will even attempt to beat the official index, by making some weighting adjustments. So now that you know how the Nikkei 225 has performed over the past 30 years, in the next section of our guide we are going to show you how you can make an investment. While the above figures do make nervous reading, it is important to remember that investing is all about timing. Before the economic downturn came to fruition,  in 1989 the Nikkei peaked at 38,916 points. The scary thing is that almost 30 years later, the Nikkei 225 has still not got anywhere close to the all-time highs it experienced in 1989. As such, it wouldn’t make sense to include smaller organizations on the main index, not least because their effect on the health of the wider economy is less notable.

Unlike the Nikkei, TOPIX is capitalization-weighted and tracks Japan’s largest firms by market capitalization listed in the First Section of the Tokyo Stock Exchange. While the Nikkei remains highly influential in the country’s economy, the TOPIX shows a more appropriate representation of price changes and incorporates the TSE’s largest companies. As of 2019, the Tokyo Stock Exchange had 2,292 listed companies with a total market capitalization of US$5.67 trillion. A price-weighted index assigns weight to each component company based on its stock price. This means that companies with higher stock prices have a more significant influence on the index’s value, regardless of their total market capitalization.

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