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What is the Nikkei 225?

2016-11-04T14:52:10+00:00

The term 'Nikkei 225' is included in the Investments edition of the Financial Dictionary. It's available on mazon in Kindle or Paperback version. See more details here.

The Nikkei is an abbreviation for Japan’s foremost, best known, and most respected stock index of Japanese companies. Its full name is the Nikkei 225 Stock Average. This index is price weighted and made up of the top 225 industry leading companies which investors trade on the Tokyo Stock Exchange. The United States equivalent of this Nikkei is the Dow Jones Industrial Average.

This stock index originally came into existence as the Nikkei Dow Jones Stock Average. Investors knew it by this name during the years 1975 to 1985. Today’s Nikkei 225 carries the name of the Japan Economic Newspaper “Nihon Keizai Shimbun” which is generally referred to as Nikkei. This newspaper is the sponsor for the index and its calculation. There has been a calculation of this index going back to September of 1950. There are many well known firms that make up this index. Some of the most recognized are Toyota Motor Corporation, Sony Corporation, and Canon Inc.

The Nikkei 225 proves to be Asia’s oldest stock index in existence. The country founded it in its industrialization and reconstruction efforts that followed the end of World War II. Stocks which make it up are not ranked by market capitalization like in the majority of such indices around the world. Instead they are ranked and listed based on their share prices. The denominations of every stock’s value are in Japanese yen. Each September the Nikkei’s make up undergoes review so that necessary changes can be made effective for October.

The actual Tokyo Stock Exchange began operating in 1878. This exchange received a major boost in the heat of World War II when the Japanese government decided to merge Tokyo’s Stock Exchange with five other exchanges to make a single, unified national Japanese Stock Exchange. This pan-Japanese exchange had to be shut down in August of 1945 towards the conclusion of the war. It finally opened again on May 16 in 1949 as part of the new legislation the Securities Exchange Act.

An enormous asset bubble engulfed Japan during the late 1980s. The government bore responsibility for this as they employed both monetary and fiscal stimulus programs to attempt to offset the nation’s currency led recession. The yen had risen 50% in the beginning of the decade. From 1985 to 1989, both land and stock prices tripled in value. When the bubble reached its peak, Tokyo’s Stock Exchange comprised an astonishing 60 percent of all capitalization for global stock exchanges.

This bubble exploded in 1990. That year alone the Nikkei 225 Index dropped by a third. This economic and stock market stagnation continued for decades so that in the midst of the Great Recession in October 2008, the Nikkei’s value had dropped below 7,000. This represented an astonishing plunge of over 80 percent from the high set back in December of 1989. The government worked to re-inflate the index powerfully from June 2012 to June 2015 as it rose 150 percent. The government’s economic stimulus programs coupled with efforts of the Bank of Japan assisted in this asset appreciation. Even at these loftier levels, this still proved to be almost 50 percent under the high set in 1989.

Investors who wish to invest in the index may not buy it directly. A few different ETF Exchange Traded Funds track its performance. These include the Japan iShares Nikkei 225 by Blackrock and the Nikkei 225 Exchange Traded Fund by Nomura Asset Management. Investors can trade the index via ETFs in dollars on the New York Stock Exchange by purchasing or selling shares of the Nikkei 225 Index ETF by Maxis.

The term 'Nikkei 225' is included in the Investments edition of the Financial Dictionary. You can get your copy on mazon in Kindle or Paperback version. See more details here.