The Nikkei 225 is the most widely-quoted index of the Tokyo stock exchange, comparable to the Dow Jones Industrial Average in the U.S. It is named after the Nikkei newspaper that began calculating the index in 1950. The Nikkei index is composed of 225 Japanese companies from various industries. Notable companies include Toyota, Bridgestone, Kikkoman, and Panasonic.
Like the Dow, the Nikkei is price-weighted; a stock that trades at $50 will make up 5 times more of the total index than a stock that trades at $10. This gives the larger companies more influence on the movement of the index.
The Nikkei 225: What You Need to Know
- The Nikkei index has gained a reputation for being the most volatile traded index, prone to sharp price movements. In 2013, the Nikkei started near 10,600, peaking at 15,942 before plunging 10%, then rebounding. Experts have said that trading the Nikkei is for brave, experienced traders.
- Japan’s economy is based on exports, mostly to the United States. This ties the two economies together so that the Nikkei follows the movements of the U.S. markets and indices.
- Trading the Nikkei requires keeping a sharp eye on what the U.S. markets are doing. If the Dow rises, the Nikkei will usually follow suit the next day.
- Because of this, trading at the right time of day is very important. It’s key to trade in the first hour of the Tokyo trading day to capitalize on trends from the day before. A good general rule is to buy if the Dow went up and sell if it went down.
- The Nikkei reacts to world events such as natural disasters, wars, political unrest, and economic news. It is also important to follow economic data from the U.S. and Japan, including unemployment rates, job creation, interest rates, GDP figures, and other economic benchmarks.