Overview of the Nikkei 225 Stock Market Index

The Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE). It is calculated daily by the Nihon Keizai Shimbun (Nikkei) newspaper. The Nikkei was first calculated in 1950 and is the most widely quoted average of Japanese stocks.

It is similar to the US’ Dow Jones Index in that it is a price-weighted index so companies with higher share prices receive a larger weighting when determining the value of the index. It was in fact called the Nikkei Dow Jones Stock Average from 1975 to 1985.

The Nikkei measures the performance of 225 large, publicly-owned companies in Japan from a wide array of industry sectors. It therefore maps the performance of the Japanese economy and is an indicator of investor sentiment towards Japanese equities.

Companies of the Nikkei 225 Stock Market Index

Below is a list of the fifteen largest companies in terms of share price on the Nikkei*.

Fast Retailing Nitto Denko Tokyo Electron
FANUC Toyota Motor Daikin Industries
Central Japan Railway Secom Kyocera
East Japan Railway Shin-Etsu Chemical Nippon Telegraph & Telephone
Softbank MEIJI Holdings KDDI
*As of 30th September 2013Fast Retailing is the largest company on the Nikkei. Its share price is over double that of FANUC, priced at 36,850 Yen as of the 30thSeptember 2013. Fast Retailing is a retail holding company that owns the Uniqlo clothing brand among several other well known Japanese brands. It has a weight of over 9% of the Nikkei.

The Nikkei is heavily influenced by technology companies. Pharmaceuticals, electric machinery and communications fall under the technology sector. It is therefore important to understand the performance of these sectors of the economy when trading the Nikkei.

Admission to the Nikkei

The components of the Nikkei are reviewed on an annual basis every autumn. If a change is decided by the selection committee it takes place at the start of October. However, at any stage we can see a change if a company is delisted from the Tokyo Stock Exchange (TSE). This is known as an Extraordinary Replacement and is usually the result of a bankruptcy or merger.

October 2013 will see the first changes to the Nikkei in two years. Nitto Denko and Tokyu Fudosan Holdings will replace Tokyu Land Corporation and Mitsubishi Paper Mills respectively. This is because Tokyu Land Corporation will be delisted from the TSE and will form a new holding company. Mitsubishi Paper Mills is being removed due to a decline in liquidity.

The goal of the Nikkei is to portray an accurate representation of the Japanese economy and their equities market. A constituent must be a domestic company listed on the Tokyo stock exchange and issue ordinary shares for it to be a listed on the Nikkei. Industry sector balance (from the six above in our pie chart) and trading volume/liquidity are two criteria which are assessed when selecting constituents.