Nikkei 225: The main index to measure the performance of the Japanese stock market

What is the Nikkei 225 Index and Why Is It Important

Nikkei 225 is one of the most significant stock indices in the world, used to measure the overall health of the Japanese stock market. This index comprises 225 leading companies across various industries listed on the Tokyo Stock Exchange(Tokyo Stock Exchange). These include well-known names such as Hitachi, Fujitsu, Panasonic, Sharp, and Toyota.

Compared to Thailand, the Nikkei 225 plays a similar role to the SET50 index of the Stock Exchange of Thailand, which includes leading stocks like KBANK, PTT, and CPF.

History of the Index dates back 72 years from September 7, 2493 (B.E.), as it has been calculated retroactively to May 16, 2492 (B.E.), the date when the Japanese stock market reopened after World War II. The Nikkei 225 is considered the oldest stock index in Asia.

The Tokyo Stock Exchange initially created and calculated the index until 1970. Since then, the operation has been handed over to Nihon Keizai Shimbun(The Nikkei), which has been calculating and reporting the index data daily to this day.

Market Movements: Historical Ups and Downs

The Nikkei 225 has experienced interesting volatility throughout its history, reaching a peak of 38,916 points at the end of December 1990 during the Japanese asset bubble burst. Later, it fell to a low of 7,568 points at the end of February 2009, coinciding with the US subprime mortgage crisis.

As of the latest data on December 17, 2025, the Nikkei 225 index stood at 49,512.28 points, up 0.26% or 128.99 points from the previous day. The market opened at 49,413.19 points, with intraday highs of 49,571.50 and lows of 49,077.81, reflecting buying interest and volatility in the Japanese stock market during that period.

Index Calculation Mechanism: The Underlying Technique

Price-Weighted Index System

The Nikkei 225 uses a price-weighted index system for calculation, meaning the stock prices of individual companies influence the overall index level. The index is calculated every 5 seconds during trading hours.

Price Adjustment Factor (PAF)

In calculation, stock prices are adjusted using the Price Adjustment Factor (PAF) to make the prices of different stocks comparable and standardized.

Calculation formulas:

• Adjusted stock price = stock price × (PAF)
• Index value = sum of adjusted stock prices ÷ Divisor (Divisor)

The PAF has been officially used since October 2021 to structurally adjust stock prices. Before that, Nikkei used a “presumed par value” system, which had limitations compared to PAF.

Brief history of the calculation system

The par value system was abolished after Japan’s Commercial Code was amended in October 2001. However, many stock prices still reflect the nominal value structure, such as 50, 500, or 50,000 yen, combined with differences in trading units—some stocks traded as single shares, others in lots of 100 or 1,000 shares—leading to significant price disparities.

To address this, the Nikkei index adopted a presumed par value system, adjusting component stock prices to a hypothetical nominal value of 50 yen to maintain calculation consistency. Later, this evolved into the Price Adjustment Factor (PAF), which enhances accuracy, flexibility, and standardization.

Criteria for Selecting Stocks in the Index

Review Method

The Nikkei 225 index’s stock selection in 2025 will follow a Periodic Review and Extraordinary Replacement process, emphasizing liquidity and industry balance.

The annual review occurs twice a year, in January and July, with implementation in April and October, respectively.

Selection Criteria

Liquidity is the primary factor, assessed by:

• Total trading value
• Price volatility

Stocks with low liquidity are removed, and those with high liquidity are added as replacements.

Additionally, industry balance is considered to ensure the index accurately reflects Japan’s stock market and economic conditions.

Replacement of Components

When a stock is delisted due to corporate restructuring, such as mergers or moving to another exchange, a new stock will replace it. The selection of the new stock considers liquidity and must come from the same industry to maintain the industry composition of the index.

Composition and Distribution of the Index

The Nikkei 225 includes stocks from 36 industries grouped into 6 major categories:

1. Technology - 52.03%
2. Consumer Goods - 22.36%
3. Materials - 12.69%
4. Capital Goods and Others - 8.46%
5. Financials - 2.39%
6. Transportation & Utilities - 1.56%

As of December 18, 2025, Technology accounts for the largest share, nearly half of the index, followed by Consumer Goods and Materials. The Financials and Transportation & Utilities sectors have smaller proportions, around 2% each.

Factors Influencing Market Movements

1. Global Economy

Japan relies heavily on exports, so the economic conditions of trading partners directly impact the market. The US and China are the main export markets influencing Japan’s economy the most.

2. Japanese Economic Performance

Monitoring GDP figures is essential. A growing economy helps companies generate higher profits, positively affecting stock prices.

3. Monetary Policy

Low interest rates reduce operational costs for companies, increasing profits. Investors should watch for changes in monetary policy, such as rate hikes.

4. Fiscal Policy

Heavy government investment and low taxation stimulate the economy, especially benefiting industries aligned with government policies.

5. Industry-specific Conditions

Changes in economic structure, government policies, consumer behavior, and competition directly affect each industry. The technology sector, nearly half of the index, is vulnerable to high inflation and trade barriers.

6. Corporate Earnings

The profits of the 225 companies directly impact stock prices and are the most critical indicator.

7. Exchange Rates

A strong yen makes Japanese goods more expensive abroad, reducing sales. Conversely, a weaker yen makes products cheaper, boosting exports.

8. Global Oil Prices

Japan depends heavily on oil imports. Rising oil prices increase production costs and affect corporate earnings.

Why Invest in the Nikkei 225 Index

1. Diversification

Investing in the Nikkei 225 index provides indirect exposure to Japan’s major corporations. If you believe Japan’s economy will grow, investing in the index is a good alternative to managing a portfolio yourself.

2. High Liquidity

Selected stocks in the index are highly liquid, resulting in lower trading costs, narrow bid-ask spreads, and minimal price impact, making it efficient for fund investments.

3. Risk Diversification

Investors can diversify risk from the Thai market to international markets. If the Thai market declines, the Nikkei 225 may not be affected equally. However, the index is known for high volatility, requiring close monitoring for short-term trading, but this volatility also offers higher profit opportunities.

How to Invest in the Nikkei 225 Index

Besides directly buying Japanese stocks, investors can also invest through financial products tracking the Nikkei 225 index. This option is suitable for beginners and those seeking lower risk, as it effectively involves owning shares of 225 leading companies simultaneously, reducing individual stock risk.

1. Exchange Traded Fund (ETF)

Brokerages and asset management companies offer funds that invest in the Nikkei 225 index, such as KT-JPFUND-A by Krung Thai Asset Management and TMPJE by TMBAM Eastspring.

Investing in ETFs involves risks such as:

• Issuer operational risk
• Liquidity risk of the fund
• Potential fund suspension
• Risks from derivatives contracts on foreign investments
• Currency fluctuation risk

2. Contract for Difference (CFD)

CFD (Contract for Difference) is a financial instrument allowing profit from price movements of stocks, indices, and commodities without owning the underlying assets, by posting a margin.

For example, if an investor expects the Nikkei 225 index to rise, they can buy a CFD. When the index increases, they profit from the price difference. Conversely, if the price falls, they incur a loss.

Advantages: Use of leverage, e.g., 1:100, meaning a 100-baht margin can control a 10,000-baht index position.

Risks: Due to low margin, small fluctuations in the index can wipe out the margin and force liquidation. Unlike ETFs, which involve direct ownership of stocks and can be held long-term.