Nikkei 225 Index: Share Price, Chart and Forecast
Nikkei 225 Stock average is one of the most respected benchmark indices in the world, tracking some of the biggest blue-chip companies based in Japan. Established in 1950 (retroactively calculated till 1949), it is the oldest stock index in Asia. Nikkei 225 is one of the most popular indices in the world, reflecting the performance of the Japanese economy. With companies from 36 different industries, Nikkei 225 is a diversified price-weighted index with double-digit annualized returns in recent years.
What is Nikkei 225 Index?
Nikkei 225 Index is a leading Japanese benchmark index comprising the top 225 blue-chip companies trading on the Tokyo Stock Exchange (TSE). The index’s performance is often used as a yardstick to gauge Japan’s economic backdrop and consumer sentiment. It is considered as a premier benchmark index in Japan and as an equivalent to the United States’ Dow Jones Industrial Average (DJIA) index.
Nikkei Definition and Overview
Nikkei 225 is a price-weighted index equity constituting of the biggest Japanese companies and is one of the most tracked benchmark indices tracked globally. Established in 1950, the index value is calculated by sponsor Nihon Keizai Shimbun (also known as ‘Nikkei’) every five seconds during trading hours. The index has been retroactively calculated till 1949.
The index’s value is calculated using the “Dow adjustment,” wherein the average stock prices are adjusted to the presumed par value, then divided by 225 (adjusted for stock splits and stock consolidation). This method negates the effect of external factors not directly related to the market movements.
Adjusted stock price = stock price x 50 x presumed par value (in Japanese Yen)
Nikkei 225 stock average = aggregate adjusted stock price/ divisor
While the index cannot be actively traded, investors often invest in Nikkei 225 ETF to gain exposure to the underlying companies.
Nikkei 225 Today and History
As it is a price-weighted index, Nikkei 225 stock average is taken to determine the index’s value. Moreover, Nikkei 225 constituents are reviewed annually in October, and changes are adjusted accordingly. Companies that are going through corporate restructurings such as mergers, acquisitions, or share exchange/transfer, are delisted from the index during the Periodic Review on the first trading day of October. New companies are added on the same day under the Extraordinary Replacement to ensure the total number of constituents adds up to 225.
Nikkei 225 Historical Evolution 1950-2001
The Nikkei 225 history has witnessed some major crashes since its establishment in 1950. It pulled back by 10% in 1953 following the news regarding Stalin deteriorating health broke out a few years after World War II ended. The index, which was a one-dollar market back then, shed ¥37.81. This triggered the first full-scale stock market crash since the reopening of the Tokyo stock exchange (TYO) after the war in 1949.
Two decades later, Nikkei 225 was reeling from the effects of the “Nixon” shock in 1971. The abolishment of the gold standard by then U.S indeed lead the index to shed 7.68%. It was then affected by the 1973 oil embargo crisis, during which it declined by more than 1,000 yen in the span of eight months.
Nikkei 225 hit its all-time high of 38,916 on December 29, 1989, during the Japanese asset price bubble from 1986 to 1991. The index then witnessed minor pullback during the dot com bubble in the 2000s and the 9/11 attacks in the U.S.
Nikkei 225 Historical Evolution 2001-2021
Nikkei 225 index hit its 26 year low in 2008, due to the sub-prime. Due to the immense Japanese exposure in the U.S. mortgage industry, the housing collapse in the west caused Nikkei 225 to almost fall below the 7,000 yen level.
Moreover, several cumulative natural disasters in Japan in 2011 caused the economy to slow down. In fact, in the wake of the Fukushima nuclear power plant disaster caused by the Great East Japan Earthquake, Nikkei 225 declined 10.55%, which is the third-largest pullback after the 1987 Black Monday and 2008 sub-prime crisis.
Nikkei 225 Today
Following the pandemic-driven market crash in 2020, the Japanese stock market made a strong recovery. Nikkei225 crossed 30,000 for the first time in three decades on February 15, 2021, to hit its highest level since August 1990. This can be attributed to the strong economic recovery from the pandemic-driven recession, impressive corporate earnings, and fast-paced vaccination drive.
Effective October 1, 2021, KEYENCE CORPORATION, Murata Manufacturing Co., Ltd., and Nintendo Co., Ltd. have been added to the Nikkei 225 index today. These companies substituted Nisshinbo Holdings Inc., Toyo Seikan Group Holdings, Ltd., and SKY Perfect JSAT Holdings Inc., which were deleted from the benchmark index.
The Nikkei 225 Index Price Evolution
The Nikkei 225 index is used as a barometer to measure Japan’s economic conditions. Since its establishment in 1950, the index witnessed five major market crashes as we have just detailed. However, the index has improved substantially over the years and is one of the biggest benchmark indexes worldwide.
The Nikkei 225 index has gained 30.56% over the past year, outperforming its U.S. equivalent Dow Jones Industrial Average’s 25.13% returns over this period. In addition, the Japanese benchmark index gained 11.13% year-to-date as of 2021,
The key performers which drove the Nikkei 225’s rally are M3 Inc, Kawasaki Kisen Kaisha Ltd, and T&D Holdings Inc. Nikkei 225 index’s annualized return over the past three years is 15.11%. Following a 12.08% slump in 2018, the index gained 18.2% in 2019, 16.01% in 2020, and 11.13% in 2021.
What Influences the Price of Nikkei 225?
Nikkei 225 is one of the most volatile benchmark indices in the world. Over the past few decades, the index has witnessed multiple pullbacks due to both domestic and international factors. As Japan is an export-focused economy, international developments and the geopolitical scenario plays a major role in the index performance. Major Factors that influence Nikkei 225 index are as follows.
An Index Sensitive to Global Stock Markets
Japan is the fourth largest export economy in the world, and its imports account for more than 17% of its GDP. Thus, the economy is highly receptive to global stock market movements.
Nikkei 225 companies are extremely responsive to the U.S. markets in particular due to the strong trade relations between the two countries. For instance, during the 9/11 crisis in the United States, Nikkei 225 fell 6.57% to close below the 10,000 level for the first time since 1984. This, coupled with the asset bubble crash, caused the index to lose 75% of its market value from its all-time high.
Nikkei 225 and Macroeconomic Parameters
Federal policies have had a tremendous impact on the Nikkei 225 companies over the years. Shinzo Abe’s policies drove the index to double in six years to more than 24,000 in 2018. Abenomics drove the country out of its lost decade to witness substantial growth in the 2010s. Robust quantitative easing policies increased money supply, and currency devaluation helped the economy revive rapidly.
Major economic benchmark data such as consumer spending, job growth, and inflation have a major influence on the index performance. Over the past year, Nikkei 225 grew rapidly to hit three-decade highs, driven by robust bailout packages and improving job growth and consumer spending.
The Impact of Currency Exchange Rate
The JPY-USD exchange rate has historically influenced the benchmark index performance over the years. Given the significance of international trade for Japan, competitive exchange rates have fostered economic growth in the country over the past decades, thereby boosting Japanese stock markets. The country has a long-standing history of negative interest rates and loose money supply policies, driving its economic growth over the years.
Exchange rate fluctuations and related developments affect Nikkei 225 performance. Allegations regarding an intentional devaluation of the Japanese Yen by the then U.S. President Donald Trump caused the benchmark index to dip slightly.
Covid-19 Cases and Nikkei 225
The Covid-19 pandemic-driven recession caused the Nikkei index to dip substantially in March 2020, as the global markets crashed due to lockdowns and the healthcare crisis. However, the index has bounced back since then, due to substantial government support and declining coronavirus cases. The country has been reopening gradually due to the fast-paced vaccination drive, boosting consumer confidence.
Moreover, the remote lifestyle under the new normal increased stock trading, resulting in bullish Japanese stock markets. This is reflected in Nikkei 225 index’s double-digit gains year-to-date. While the Delta variant of Covid-19 caused the index to shed a few points, it recovered quickly with the approval of various coronavirus vaccines and a strong vaccination drive.
Geopolitical events influence the highly volatile Nikkei 225 index, as evident from historical events. The latest United States election results caused the Japanese benchmark index to reach its 29-year highs. The strategic location of Japan coupled with its dependence on international trade makes its stock markets highly susceptible to any global developments. For example, the strained relations between China and the United States had a major impact on the Japanese markets over the past few months.
Japan’s internal events and policies also have a major impact on Nikkei 225 companies. The strong corporate earnings report in the second quarter of 2021 caused the index to rally to reach 31-year highs. Moreover, the Japanese markets are reacting favourably to the upcoming election race. Nikkei 225 gained 2.05% intraday after the news stating that the incumbent president Yoshihide Suga is not running in the upcoming presidential race broke out.
The Nikkei 225 Companies
Nikkei 225 consists of the top 225 Japan-based companies listed in the Tokyo Stock Exchange. As it is a price-weighted index, technology stocks have a stronger influence on the index, as they tend to have a higher valuation and consequently market capitalization. The total index market capitalization is 430.95 trillion yen.
Nikkei 225 companies are selected based on two factors – liquidity and sector balance. A company’s cash flow structure and cash reserves play an important role in its selection in the index. Also, Nikkei 225 gauges the sector balance of a company within its six sector categories consolidated from the 36 industrial classifications.
Nikkei 225 Composition and Weightings
The index comprises 78 large-cap stocks, which have a market capitalization rank between 1 and 100. In addition, 122 medium-sized companies are present in the index, that have a Tokyo Stock Exchange market capitalization between 101 and 500. There are also 25 small-sized companies with a market capitalization rank of over 500.
Of the 225 companies in the index, 58 are technology stocks, (48%) in the index. It also comprises 33 Consumer Goods stocks, (24%). and 58 materials stocks in the index (14%). 35 Capital Goods/Others companies are listed in Nikkei (10%). Finally, there are 20 Transportation and Utilities and 21 Financials companies in the index, equating to sector weightage of 2.21% and 2%, respectively.
Nikkei 225 List of Stocks
Here are the top 25 stocks of the Nikkei 225 index today, as per weightage. These have a combined weightage of over 7.60%, and thus, hold tremendous influence on Nikkei 25 price performance.
|Ticker||Company Name||Nikkei Sector|
|1332||NIPPON SUISAN KAISHA LTD||Fishery|
|1333||MARUHA NICHIRO CORP.||Fishery|
|1721||COMSYS HOLDINGS CORP.||Construction|
|1925||DAIWA HOUSE IND. CO., LTD.||Construction|
|1928||SEKISUI HOUSE, LTD.||Construction|
|1963||JGC HOLDINGS CORP.||Construction|
|2002||NISSHIN SEIFUN GROUP INC.||Foods|
|2269||MEIJI HOLDINGS CO., LTD.||Foods|
|2282||NH FOODS LTD.||Foods|
|2432||DENA CO., LTD.||Services|
|2501||SAPPORO HOLDINGS LTD.||Foods|
|2502||ASAHI GROUP HOLDINGS, LTD.||Foods|
|2503||KIRIN HOLDINGS CO., LTD.||Foods|
|2531||TAKARA HOLDINGS INC.||Foods|
|2768||SOJITZ CORP.||Trading Companies|
|2802||AJINOMOTO CO., INC.||Foods|
Should I Trade the Nikkei 225? Points to Consider
As one of the most respected benchmark indices in the world, Nikkei 225 is heavily traded through contracts for difference (CFDs), Nikkei 225 futures, and Nikkei 225 ETF. However, investors should note these major points before investing in the Nikkei 225 companies.
1. The Nikkei 225’s dividend yield is 1.72%, significantly higher than the negative benchmark interest rates. Also, it is slightly higher than the U.S.-based S&P 500 index’s 1.28% dividend yield. Some of the highest dividend paying Nikkei 225 companies are Japan Tobacco (dividend yield: 7.25%), Shimizu Corp. (dividend yield: 5.36%), and Japan Post Holdings (dividend yield:5.07%).
2. Nikkei 225 index has a 12.43% return on equity (ROE).
3. Since it is a price-weighted index, the Nikkei 225 performance can be heavily swayed by extreme fluctuations by a handful of stocks. This might lead to a misappropriate representation of market movements.
How Can I Trade the Nikkei 225?
Contracts for difference (CFD) trading is ideal for investors planning to invest in Nikkei 225, as the brokerage and commission charges tend to be the lowest on such instruments. ZFX trading platform charges zero commissions on such trades, therefore maximizing return on investment. Here’s how to invest in Nikkei 225 through ZFX.
Step 1: Open an Account with ZFX
ZFX offers three types of trading accounts – Mini Trading Account, Standard STP Trading Account, and ECN Trading Account. Furthermore, the platform also provides a demo trading account, allowing investors to get accustomed to the user interface and trading procedures. Based on the size of investments and personal preference, one can open a trading account with ZFX online within minutes.
Step 2: Verify your Account
The personal details entered while opening the account are verified in this step. Following the online document verification, ZFX trading accounts are activated.
Step 3: Fund your Account
Mini trading accounts require a minimum initial investment of $50, while Standard STP Trading accounts and ECN trading accounts have a minimum fund deposit requirement of $200 and $1000, respectively. Based on the nature of the account and investment goals, investors can deposit funds online within minutes.
Step 4: Start Trading on the JAPAN225
The Japanese benchmark index is available on the ZFX Platform under the name “Nikkei 225 JAPAN225.” Investors can place orders directly from the website, following which the trade will be processed.
Things to Know Before Investing in the Nikkei 225
Nikkei 225 index live can be traded when the Japanese stock markets are open during the weekdays. The trading hours range from 9:30 am – 11:30 am (Morning Session), and 12:30 pm to 3:00 pm (Afternoon Session) Japan Standard Time (GMT+09:00) from Monday to Friday.
If you are thinking of trading this index, make sure to take note of these times and to apply them to your own timezone. Note that Nikkei CFD can be traded during the aftermarket hours as well.
Nikkei 225 Future, Forecast and Predictions
Analysts expect the Nikkei 225 to cross 31,000 soon, considering the bullish market sentiments and strong macroeconomic backdrop.
While the ongoing Evergrande crisis is currently maintaining pressure on the Japanese markets, the Chinese government is expected to bail out the real estate behemoth in the event of substantial defaults, thereby limiting its impact on the international community.
Bottom Line: Is Nikkei 225 a Good Investment Now?
Nikkei 225 index is one of the most respected benchmark indices tracking the Japanese markets. However, being a price-weighted index, Nikkei’s performance is dominated by the largest stocks in the index, typically from the tech sector. Moreover, given the highly responsive nature of the index, it often witnesses substantial pullback due to international news or geopolitical events that have no direct impact on the Japanese economy.
If you are interested in trading on the Nikkei 225 now, then you can do so easily and quickly via the ZFX broker and the MT4 platform it offer. Indeed, in only a few simple steps, you’ll be able to access JAPAN225 and add it to your portfolio.