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Nikkei 225
Nikkei 225

Everything About Nikkei 225 – a Leading Japanese Stock Market Index

You may already know about the Dow Jones at the New York Stock Exchange or the FTSE at the London Stock Exchange. These indices are used to gauge the performance of a certain market sector and speculate on it rather than individual stocks. Similarly, the Nikkei 225 is an underlying index at the Tokyo Stock Exchange.

Nikkei Definition

Nikkei 225 is Japan’s most important index, which reflects business activity in the country. It contains 225 stocks from different companies traded on the Japanese Stock Exchange. The index itself displays the average arithmetic value of these stocks. It was introduced on September 7, 1950, meaning at that time, its value was published for the first time. It was named after a newspaper that calculated it.

There are different variations of the index: Nikkei 500, Nikkei Stock Index 300, and Nikkei All Stock Index. All of them display somewhat similar information, but the Nikkei 225 is still considered the leading, most widely used indicator.

The selection criteria are based on the price of the company’s stock rather than market capitalization, like in some other indices. Only the largest ones make it to the list of constituents. The higher-priced stocks have the largest influence on the index.

Understanding the Meaning of Nikkei

"Tokyo stock exchange" building

The Nikkei 225 consists of stocks selected from top-performing blue-chip companies based in Japan. The main criteria for being selected are the price of the stock, liquidity, and sector balance. Also, the stock must be listed on the Tokyo Stock Exchange First Section.

The composition of the Nikkei 225 is subject to an annual reexamination – a Periodic Review. This takes place in October, where every company is checked to determine whether it fits the criteria. And the process of changing the list of constituents is called an Extraordinary Replacement.

NameIndustryWeight (%)
Fast Retailing Co., Ltd.Retail10.45
Softbank Group Corp.Communications4.26
Tokyo Electron Ltd.Electric Machinery3.46
Fanuc Corp.Electric Machinery3.37
KDDI Corp.Communications2.80
Daikin Industries, Ltd.Machinery2.33
Terumo CorpPrecision Instruments2.24
Kyocera Corp.Electric Machinery2.22
Shin-Etsu Chemical Co., Ltd.Chemicals1.92
Familymart Co., Ltd.Retail1.71

It is calculated based on the value of the 225 most liquid stocks of the Tokyo Stock Exchange. The formula was developed by the American company Dow Jones & Co., which differs from their European counterparts.

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