What Is Nikkei Index? Learn More About This Popular Japanese Stock Index

The Nikkei, which is the short form for Nikkei 225 Stock Average, is the largest and most prominent stock index in Japan and is highly regarded by financial experts. It is the Japanese equivalent of the Dow Jones Industrial Average in terms of stock indices. The Nikkei is a stock index comprising 225 of Japan’s largest and most reputable companies. The index is price-weighted, meaning it functions by considering the average stock prices of all the companies that are listed on the Nikkei. Some popular mainstream companies listed on the Nikkei include Sony Corporation, Company, Honda Motor Company, Canon Inc., Nissan Motor, and more.

The Nikkei index has been operating since September 1950 and is named after the ‘Nihon Keizai Shimbun’, which is a popular Japanese economic newspaper. The Nihon Keizai Shimbun is also called  Nikkei, hence the name that also applies to the Nikkei index. The Nikkei is named after the Japanese economic newspaper since it has sponsored the creation and continuation of the index. The Nikkei index was created as a part of the effort to industrialise and rebuild Japan after the end of the Second World War. As mentioned, stocks in the Nikkei exchange are ranked based on their share price, rather than their market cap and the denomination is measured in Japanese Yen. It is also a point of note that the Nikkei is the oldest stock exchange in all of Asia. The companies that are included in the Nikkei are reviewed every year in September and any changes that are to be made are then implemented in October.

The Nikkei Index follows companies that are all part of the Tokyo Stock Exchange, which is the biggest stock exchange in all of Japan.  The Tokyo Stock Exchange (TSE) was initially established in 1878 as a marketplace to exchange government bonds. Around the 1920s, the Tokyo Stock Exchange also started offering stock trading services. Moreover, during the Second World War, the Japanese government combined the Tokyo Stock Exchange with 5 other exchanges to form one ‘Japanese Stock Exchange’. However, this combined exchange closed down in August of 1945, near the end of the Second World War. The Tokyo Stock Exchange was then re-opened in 1949 under the rules of the Japanese Securities Exchange Act.

There was a major financial bubble in Japan in the late 1980s and the stock prices, as well as real estate costs, nearly tripled in just a period of 4 years. At the peak of this bubble, the Tokyo Stock Exchange comprised around 60% of the global stock market cap. This bubble burst in the year 1990, and the value of the Nikkei fell by one-third in that single year. The value of the Nikkei also declined in October 2008 to just below 7000, which was 80% less than form its 1989 peak value. The Nikkei has since recovered over the years through stimulus plans by the Japanese government.

The Tokyo Price Index or TOPIX is another very popular stock index that is used widely in Japan. While the Nikkei only contains 225 companies in its index, the Tokyo Price Index includes all the companies that are listed on the Tokyo Stock Exchange. Another major difference is that the Nikkei index uses the average share price, whereas the Tokyo Price Index considers the market cap of all companies.