What is the Nikkei 225?
The Nikkei 225 (Nikkei Stock Average) is Japan's most representative stock market index, calculated from the stock prices of 225 companies selected from the Tokyo Stock Exchange's Prime Market. It is compiled and published by Nikkei Inc. (The Nihon Keizai Shimbun) and is also known as the "Nikkei 225" or simply "the Nikkei."
When Japanese TV news and newspapers report on "today's stock market," the Nikkei 225 is the first figure they cite. It is the single most important indicator for understanding the direction of Japan's overall stock market and draws close attention from investors worldwide.
Key Concepts of the Nikkei 225
How It Is Calculated
The Nikkei 225 is a "price-weighted" index, calculated by summing the stock prices of all 225 constituents and dividing by a divisor. This means it is heavily influenced by high-priced stocks. For example, companies like Fast Retailing (Uniqlo) and SoftBank Group, which have high individual stock prices, have an outsized impact on the index.
Selection Criteria for the 225 Stocks
The 225 constituent stocks are selected based on:
- Market liquidity: Actively traded stocks that are easy to buy and sell
- Sector balance: Selected from a wide range of industries to reflect Japan's economic structure
- Periodic review: Constituents are reviewed and replaced twice per year (April and October)
Nikkei 225 vs. TOPIX
- Nikkei 225: 225 stocks, price-weighted, heavily influenced by high-priced stocks
- TOPIX: ~1,700 stocks, market-cap weighted, reflects the broader market
Historical Milestones
- December 29, 1989: Record high of 38,957 yen (peak of the bubble economy)
- October 2008: Dropped to the 7,000 range during the Lehman Brothers crisis
- February 2024: Surpassed its all-time high for the first time in 34 years
Key Points for Beginners
- The Nikkei 225 is the flagship index of Japan's stock market. Make it a habit to check its daily movements
- You can invest in all 225 constituent stocks at once by purchasing index funds or ETFs that track the Nikkei 225. This is an excellent starting point for beginners
- Since the Nikkei 225 is heavily influenced by high-priced stocks, also check TOPIX for a broader view of the market
- Pay attention not just to the index level but also to daily changes (how many points up or down) and percentage changes
Summary
The Nikkei 225 is Japan's most representative stock index, calculated from 225 companies on the TSE Prime Market, serving as the most important barometer of the Japanese economy. As a price-weighted index, it is heavily influenced by high-priced stocks, but it remains the first indicator beginners should follow. Index funds and ETFs that track the Nikkei 225 are an ideal first step for diversified investing.