Nikkei 225 Index: Calculation, Components, and Trading

This article introduces the Nikkei 225 Index (JPN225), including its calculation method, component stocks, and trading methods for traders' reference.

What is the Nikkei 225 Index?

The Nikkei 225 Index (JPN225) was first published in 1950 by Nikkei Inc. It is one of the stock market indices of the Tokyo Stock Exchange (TSE).

The index is composed of 225 representative companies listed on the Tokyo Stock Exchange, covering major companies from different industries. It is widely regarded as an important indicator for measuring the overall performance of the Japanese stock market.

What are the components of the Nikkei 225?

The Nikkei 225 Index includes 225 representative companies from various industries in Japan. Below are some key industries and typical companies:

Industry	Companies
Automotive	Toyota Motor, Honda Motor
Electronics & Electrical Equipment	Sony, Panasonic, Hitachi, Sharp
Information Technology	Fujitsu, NEC, Nintendo
Finance	Mitsubishi UFJ Financial Group, Mizuho Financial Group
Pharmaceuticals	Takeda Pharmaceutical, Astellas Pharma
Consumer Goods	Kao, Shiseido
Retail	Aeon, Seven & I Holdings
Transportation	Nippon Yusen, JR East (East Japan Railway)

The Nikkei 225 Index contains many more companies that have a significant impact on Japan's economy and represent the development of various industries. The component list is adjusted periodically to reflect changes in the market and economy.

How is the Nikkei 225 calculated?

The calculation of the Nikkei 225 Index is relatively simple, using a price-weighted method. The index is based on the stock prices of its component stocks, not their market capitalization.

1. Collect the stock prices of component companies

The latest stock prices of the 225 component companies are collected.

2. Calculate the index

These stock prices are summed up and then divided by an adjustment factor called the "divisor." The divisor is adjusted to maintain the continuity of the index whenever there are changes in the components, stock splits, or other market activities.

3. Divisor adjustment

The divisor is adjusted for "changes in the component stocks," "stock splits or consolidations," and "mergers or demergers." This ensures that the index reflects true market changes and avoids fluctuations due to technical actions like stock splits.

Simple Example:

If the stock prices of the three component companies are ¥100, ¥200, and ¥300, and the divisor is 3, the calculation would be:

Nikkei 225 Index = (100 + 200 + 300) / 3 = 200

The actual Nikkei 225 Index considers the prices of all 225 component stocks, and the divisor is precisely adjusted to reflect market changes.

Recent Trends in the Nikkei 225

In recent years, the Nikkei 225 has shown significant growth. In 2024, the index surpassed 40,000 points, reaching a historical high, breaking the record set during the 1989 asset bubble period.

The growth has been driven by factors such as improved corporate profitability, continuous foreign investment, corporate governance reforms, and a weaker yen.

Relationship Between the Nikkei 225 and the Japanese Yen

The Nikkei 225 Index has a close relationship with the Japanese yen, which is reflected in the following aspects:

Exchange Rate Impact:

A stronger yen usually reduces the profitability of Japan's export companies, which may put pressure on the Nikkei 225. Conversely, a weaker yen enhances the competitiveness of export companies, pushing the index higher.

Foreign Investment:

A depreciating yen attracts more foreign investors to purchase relatively cheaper Japanese stocks, which boosts the Nikkei 225. The activity level of foreign investors in the Japanese market also affects the index performance.

Monetary Policy:

The Bank of Japan's monetary policy affects the yen's exchange rate and market liquidity, which in turn impacts the Nikkei 225's movements. For instance, an easy monetary policy typically leads to a weaker yen, which benefits the stock market.

How to Trade the Nikkei 225 Index

After opening a trading account, you can trade the Nikkei 225 Index CFDs on MT4 and MT5 platforms.

Register a Titan FX Trading Account

Step 1: Log in to Your Trading Account

After downloading MT4/5, log in with your account number and password.

Step 2: Add JPN225 in Market Quotes

Right-click in the "Market Watch" window, select "Symbols," and double-click on "JPN225" under "Indices" to display its quote.

Step 3: Trade JPN225

Double-click on the JPN225 quote or open its chart to start trading.

Conclusion

The Nikkei 225 Index is an important market indicator that provides valuable market information and investment references.

The relationship between the Nikkei 225 and the yen is complex and dynamic. Traders need to consider various factors when analyzing its trends.

When investing, it is also crucial to take into account the calculation method and the characteristics of the component stocks, and weigh potential risks in investment decisions.