The Nikkei 225 index measures the performance of 225 large, publicly owned companies listed on the Tokyo Stock Exchange. As Japan's most widely quoted stock index, it serves as a key economic indicator for the country.
The index uses a price-weighted methodology, meaning stocks with higher share prices have more influence on the index's movement. The Nikkei 225 is calculated daily and published by Nippon Telegraph and Telephone (NTT), which owns the Nikkei brand.
Unlike some other major indices, the Nikkei 225 doesn't use a divisor to adjust for corporate actions like stock splits. Instead, it directly reflects the price changes of its component stocks.
The Nikkei 225 includes companies from various sectors, with particularly strong representation from:
| Sector | Weighting |
|---|---|
| Financials | 23% |
| Industrials | 16% |
| Consumer Discretionary | 14% |
| Information Technology | 12% |
The index includes only companies listed on the Tokyo Stock Exchange's first section, excluding smaller firms from its second section.
The Nikkei 225 reached its all-time high of 38,915.87 points in December 1989 during Japan's economic bubble. After a prolonged period of stagnation, it has shown recovery since 2012.
As a barometer of Japan's economy, the index influences global markets. When the Nikkei rises, it often indicates growing investor confidence in Japan's economic prospects.
Many confuse the Nikkei 225 with the TOPIX index, another Japanese benchmark. While both track Tokyo stocks, the Nikkei 225 focuses on 225 large-cap stocks, whereas TOPIX includes all first-section shares.
Another mistake is assuming the Nikkei 225 represents only manufacturing. In reality, it includes diverse sectors like technology and healthcare, reflecting Japan's broader economy.
In January 2023, Toyota's stock price rose due to strong holiday sales. As one of the Nikkei 225's highest-priced components, this increase contributed substantially to the index's gain that month.
Investors tracking the Nikkei 225 would observe this correlation between individual stock movements and the index's performance, demonstrating how price-weighting affects the benchmark.