Nikkei Index

Overview and History

The Nikkei 225, also known as the Nikkei Stock Average is a stock market index for the Tokyo Stock Exchange (TSE), established in 1950. The Nikkei Index was initially introduced at the Singapore Exchange (SGX) in 1986 along with the Osaka Securities Exchange (OSE) in 1988, and the Chicago Mercantile Exchange (CME) in 1990.

Today, the Nikkei 225 is updated every 15 seconds and it is an internationally recognized futures index. In February, the Nikkei 225 achieved a milestone when it breached 30,000 points, its highest in 30 years.

This benchmark was attributable to the monetary stimulus alongside the purchase programs which were carried out by the Bank of Japan, mitigating the financial effects that the Covid-19 pandemic had on the overall economy.

How is the Nikkei 225 calculated?

The Nikkei 225 is calculated by dividing the overall sum of all adjusted prices using a divisor. The divisor will eliminate the effect that external factors may have, especially those that are not related to the overall market movements when calculating the price-weighted index, also known as “Dow adjustment”, ensuring that the index’s continuity can be maintained effectively.

Nikkei 225 Constituents

The Nikkei 225 consists of some of the following components:

• Fishery
• Mining
• Construction
• Shipbuilding
• Foods
• Automotive
• Precision Instruments
• Textiles and Apparel
• Trading Companies
• Pulp and Paper
• Chemicals, and several more.

The Nikkei 225 is reviewed once a year during October, with the constituents changing accordingly. Qualifying criteria for constituents depends on the liquidity and the ‘sector balance’ according to the following six categories from the overall 36 Nikkei industrial classifications.

If components experience bankruptcy and are delisted or they experience a reorganization of the company group, the stock is deleted from the index and it is necessary to add a new component.

Factors that drive the Nikkei 225 Price

The price of the Nikkei Index is affected by several fundamental drivers that relate to the overall Japanese economy and the industries that operate in Japan, alongside many technological factors that must be considered.

The strength of the Japanese Yen can also affect the price of the Nikkei in addition to different economical releases, prices of commodities, and unforeseen natural disasters.

The Yen’s strength

The Yen is the official currency of Japan, and this means that it is a potential influencer of the Nikkei 225 price. Japan relies heavily on exports and most of its goods and services are purchased in international currency.

While the Yen is a major currency, if it performs weaker against other currencies, exports will become extremely competitive and with increased international demand and a weaker yen, it could buoy the Nikkei Index.

However, despite this, the Yen is considered one of the few safe-haven currencies that are heavily traded in times when there is financial uncertainty in other parts of the globe. This strengthens the Yen against other pairs and reduces the competition in exports, pushing stocks lower and subsequently compounding business concerns in an economy that is shrinking.

Individual Company Performance

The Nikkei is price-weighted, and this means that the companies on the Index that have higher weighted share prices can move the index more than smaller components. If these large companies perform poorly, it can result in the Nikkei depreciating significantly.

Social-Political Events

Social-Political Events affect all global indices and events such as the Covid-19 pandemic can affect the market in several different ways. The Covid-19 pandemic caused significant deterioration in market demand along with manufacturing activity because of quarantines, causing the Nikkei Index to plummet by as much as 38% in 2025.

Monetary Policy and Economic Data

If the Bank of Japan implements aggressive monetary policies, it could weaken the Yen, subsequently offering more favorable conditions for exporters. This could inadvertently affect the Nikkei 225 price.

However, Japan has an extensive and comprehensive quantitative easing program in place in addition to low-interest rates, indicating that the Bank of Japan follows different strategies to the United States and other economies.

Traders who are interested in trading United States indices follow a measure such as CPI to support their trading because it is directly linked to inflation. Traders who follow the Nikkei index prefer using the Tankan survey, a report that is published by the Bank of Japan, consisting of thousands of companies that are of a specific size.

The report is considered a valuable measure of business sentiment in Japan, thereby assisting traders in making informed trading decisions according to a solid trading plan.

How to trade the Nikkei 225

Traders can trade the Nikkei 225 Index in several ways, including some of the following.

CFDs

Contracts for Difference (CFDs) are a popular trading instrument in the modern trading world. CFDs are derivatives that derive their price from an underlying market, or the Nikkei 225. CFDs allow traders to speculate on the price movements of the Nikkei 225 but do not allow for physical ownership of the underlying asset.

Futures

Futures contracts can be defined as agreements between traders indicating a predetermined price at which the asset will be bought at a predetermined date in future. However, unlike other futures contracts, the Nikkei Index does not have an underlying physical asset that can be exchanged because it only represents a group of stocks.

Options

When traders choose to trade Nikkei 225 options, they have the right to buy or sell their assets as they wish without being forced to buy/sell it at a specific price on a set date.

Stocks and ETFs

Lastly, traders can also trade Nikkei 225 through exchange-traded funds, which are investment vessels that hold a group of stocks. In this case, it holds the shares of the constituents of the Nikkei 225 Index.

Traders can also opt to trade individual shares of the companies that are listed on the Nikkei 225, offering traders the perfect opportunity to focus on a specific sector or company of interest. However, this is riskier than trading ETFs.

When trading ETFs, traders can diversify their portfolios, spreading it across all companies on the Nikkei 225 and different sectors, which means that if one company or sector performs badly, others can balance the trader’s portfolio and safeguard them from loss.