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It is still widely regarded as one of the key measures of stock market activity in Asia, mainly because of the sheer size of the Japanese market and economy. Like the Dow Jones Industrial Average, the Nikkei is price-weighted, meaning that companies are weighted according to their share price rather than their total free float market cap.

What drives the price of the Japanese Nikkei 225 Index?

The price is driven by the shares of 225 of Japan’s leading companies, including many household names: Honda, Nikon, Nissan, Olympus, Sony and Suzuki are all constituents, but you also have less well known but significant operators in the world of insurance, banking and chemicals in this index. The Nikkei is a good barometer of the price action in Tokyo shares. It can also be affected by fluctuations in the yen, as many Japanese companies are big exporters, with substantial overseas interests, and hence can suffer if the yen gets too expensive.

How volatile is the Nikkei 225 Index?

The Japanese market is big, and major institutions like pension funds hold large quantities of listed Japanese stocks, often for years. However, there are also many active players in the Japanese market, including foreign funds. The high levels of liquidity means gapping in prices should be less of a problem than in smaller markets. Japanese monetary policy decisions can be a big driver of share prices as fears about the future of Japan’s economy persist. The Nikkei probably saw one of its worst periods of volatility as it was sold off at the end of the infamous Japanese bubble in 1989-90. It has never recovered from this.

The Nikkei 225 Index Price Chart



Here’s how you can trade the Nikkei 225 Index?

The Nikkei is widely available in both futures and options formats, as well as Contracts for Difference, Exchange Traded Funds and, for UK residents, Financial Spread Bets. Many other tracker products follow the Nikkei. Although the Chinese economy is now larger than Japan’s, the Japanese listed shares market dwarfs China’s, and there are few limitations on foreign investors. Hence, for traders interested in Asian markets, the Nikkei is the stand out first choice.

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Stuart Fieldhouse

Stuart Fieldhouse has spent over 20 years in journalism and financial communications, including six years as a wealth management correspondent for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong.

Stuart has worked as head of content at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Stuart continues to work with hedge funds, private banks, stock exchanges and other financial institutions on their communications, data and marketing requirements.

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