All About the Nikkei 225 Index

Nikkei 225 or the Nikkei index is the stock market index for Tokyo Stock Exchange (TSE). Nihon Keizai Shimbun newspaper has calculated this index daily since 1950.

Table of Contents

• Constituents
• Investment in the Index
• Why trade in the index?

Nikkei 225 index is a price-weighted equity index that consists of 225 blue-chip companies in the Tokyo Stock Exchange’s 1st section. These companies belong to 36 different industries. The aim of its establishment was to industrialize Japan in the aftermath of Secondary World War. The Nikkei 225 exchange is calculated every 5 seconds when the Tokyo Stock Exchange opens.

Constituents

These constituents are changed annually at the beginning of October based on the review in September. The selection is based on liquidity and sector balance. A stock gets deleted from the index if a company get delisted due to bankruptcy. A new component would then be added followed by an Extraordinary Replacement procedure. In this index, the constituent stocks are ranked by the share price instead of market capitalization. Valuation is denominated in Japanese yen.

Calculation

Constituent stock prices are adjusted by the price adjustment factor. Nikkei 225 is calculated through the division of summation of adjusted prices by the divisor. This divisor maintains the continuity of the index. This is done by eliminating the effect of external factors that are directly not related to the market movement while calculating the price-weighted index.

How to Invest in Nikkei 225 Index?

There is no direct method to trade in stocks on the Nikkei index. Those who are interested can obtain exposure to the index by buying index through exchange-traded funds whose components are correlated to the Nikkei index. Exchange trade comprises stocks and securities. Investors use them for speculative trading strategies like short selling and trading on margin. Investors can also fulfil their specific asset allocation needs through ETF and can also use them to reduce tax implications. Interested investors can trade ETFs in large volume to redeem them for the shares of stocks that ETF tracks.

Trading in the Index

Around the world, there are several Nikkei 225 based financial products that are traded on stock exchanges globally. These may include Nikkei 225 futures, warrants, ETFs and options. You need to open an account to trade in ETFs with a brokerage that allows you to buy and sell investments that are not listed on the US exchange. 

There are certain limitations while trading ETFs in the local markets. The Tokyo Stock Exchange-listed ETFs are denominated in Japanese yen. Whenever foreign investors invest in Japanese ETFs, they are exposed to currency exchange risk. A fluctuation in the exchange rate between dollar and yen can put investors to risk. 

Annual Development of the Nikkei 225 Index

The following table represents the annual development of the Nikkei 225 index that is being calculated since 1914.

Year	Closing level	Change in Index in Points	Change in Index in %
1914	21.12
1915	32.10	10.98	51.99
1916	41.61	9.51	29.63
1917	41.40	−0.21	−0.50
1918	42.21	0.81	1.96
1919	53.63	11.42	27.06
1920	27.44	−26.19	−48.83
1921	28.88	1.44	5.25
1922	23.97	−4.91	−17.00
1923	22.83	−1.14	−4.76
1924	24.45	1.62	7.10
1925	27.96	3.51	14.36
1926	27.25	−0.71	−2.54
1927	25.82	−1.43	−5.25
1928	25.65	−0.17	−0.66
1929	21.32	−4.33	−16.88
1930	16.82	−4.50	−21.11
1931	16.28	−0.54	−3.21
1932	30.33	14.05	86.30
1933	34.12	3.79	12.50
1934	32.30	−1.82	−5.33
1935	33.76	1.46	4.52
1936	35.94	2.18	6.46
1937	37.33	1.39	3.87
1938	33.66	−3.67	−9.83
1939	44.96	11.30	33.57
1940	37.42	−7.54	−16.77
1941	42.44	5.02	13.42
1942	42.71	0.27	0.64
1943	42.11	−0.60	−1.40
1944	41.82	−0.29	−0.69
1945	40.53	−1.29	−3.08
1946	28.72	−11.81	−29.14
1947	39.31	10.59	36.87
1948	72.84	33.53	85.30
1949	109.91	37.07	50.89
1950	101.91	−8.00	−7.28
1951	166.06	64.15	62.95
1952	362.64	196.58	118.38
1953	377.95	15.31	4.22
1954	356.09	−21.86	−5.78
1955	425.69	69.60	19.55
1956	549.14	123.45	29.00
1957	474.55	−74.59	−13.58
1958	666.54	191.99	40.46
1959	874.88	208.34	31.26
1960	1,356.71	481.83	55.07
1961	1,432.60	75.89	5.59
1962	1,420.43	−12.17	−0.85
1963	1,225.10	−195.33	−13.75
1964	1,216.55	−8.55	−0.70
1965	1,417.83	201.28	16.55
1966	1,452.10	34.27	2.42
1967	1,283.47	−168.63	−11.61
1968	1,714.89	431.42	33.61
1969	2,358.96	644.07	37.56
1970	1,987.14	−371.82	−15.76
1971	2,713.74	726.60	36.57
1972	5,207.94	2,494.20	91.91
1973	4,306.80	−901.14	−17.30
1974	3,817.22	−489.58	−11.37
1975	4,358.60	541.38	14.18
1976	4,990.85	632.25	14.51
1977	4,865.60	−125.25	−2.51
1978	6,001.85	1,136.25	23.35
1979	6,569.47	567.62	9.46
1980	7,116.38	546.91	8.33
1981	7,681.84	565.46	7.95
1982	8,016.67	334.83	4.36
1983	9,893.82	1,877.15	23.42
1984	11,542.60	1,648.78	16.66
1985	13,113.32	1,570.72	13.61
1986	18,701.30	5,587.98	42.61
1987	21,564.00	2,862.70	15.31
1988	30,159.00	8,595.00	39.86
1989	38,915.87	8,756.87	29.04
1990	23,848.71	−15,067.16	−38.72
1991	22,983.77	−864.94	−3.63
1992	16,924.95	−6,058.82	−26.36
1993	17,417.24	492.29	2.91
1994	19,723.06	2,305.82	13.24
1995	19,868.15	145.09	0.74
1996	19,361.35	−506.80	−2.55
1997	15,258.74	−4,102.61	−21.19
1998	13,842.17	−1.416,57	−9.28
1999	18,934.34	5,092.17	36.79
2000	13,785.69	−5,148.65	−27.19
2001	10,542.62	−3,243.07	−23.52
2002	8,578.95	−1,963.67	−18.63
2003	10,676.64	2,097.69	24.45
2004	11,488.76	812.12	7.61
2005	16,111.43	4,622.67	40.24
2006	17,225.83	1,114.40	6.92
2007	15,307.78	−1,918.05	−11.13
2008	8,859.56	−6,448.22	−42.12
2009	10,546.44	1,686.88	19.04
2010	10,228.92	−317.52	−3.01
2011	8,455.35	−1,773.57	−17.24
2012	10,395.18	1,939.83	22.94
2013	16,291.31	5,896.13	56.72
2014	17,450.77	1,159.46	7.12
2015	19,033.71	1,582.94	9.07
2016	19,114.40	80.69	0.42
2017	22,764.94	3,650.54	19.10
2018	20,014.77	−2,750.17	−12.08
2019	23,656.62	3,641.85	18.20
2020	27,444.17	3,787.55	16.01
2021	28,792.34	1,348.17	4.91

Learn about the FTSE 100 index

Why Trade the Nikkei 225?

The major reason is diversification in the investment portfolio. Nikkei 225 index allows investors to gain exposure to the Japanese economy. 

Since the Japan Stock Exchange Index is the flagship index in financial markets, its movement follows trends in the global stock markets. This makes it easier to forecast the Nikkei 225 index. Additionally, technical analysis works well on the Nikkei index. The index has an inverse correlation with the Yen currency. Most of the companies in the Tokyo index are export-oriented. An increase in the Yen value weighs on their income and, in turn, Nikkei. On the other hand, a fall in JPY supports the price of Nikkei 225 stocks.

Knowing that the JPY is a safe haven asset that rises during times of stock market panic, the Nikkei is an ideal financial instrument to sell whenever global stock indices are going down. It is a great instrument for investors that want to trade overnight in Asian markets.