What Is The JP225 / Nikkei 225?

BY Chris Andreou

|November 13, 2020

The JP225, otherwise known as Japan’s Nikkei 225 Stock Average, is the leading and most-respected index of Japanese stocks. It’s considered the benchmark institutional investable stock market index in Japan, and therefore a leading indicator of the overall health and stability of the economy.

The index comprises 200+ of Japan’s largest publicly traded companies traded on the Tokyo Stock Exchange. The size of the Japanese economy makes the Nikkei 225 a key measure of stock market activity in Asia, in addition to being the world’s third largest stock exchange with a market capitalization of US$4.09 trillion.

The Nikkei 225 is equivalent to the Dow Jones Industrial Average (DJIA) Index in the United States. Some of the best-known companies listed include Sony Corporation, Canon Inc, Nissan Motor Company, as well as Honda Motor Company.

What Moves the JP225 / Nikkei 225?

The Nikkei is a price-weighted index, which means the index is an average of the share prices of all the companies listed. Meaning the more valuable a company is, the more effect it has on the entire index when the valuation of that company rises or falls.

The JP225 / Nikkei 225 is a stock index calculated by the Nihon Keizai Shimbun (Nikkei) newspaper on a daily basis. It’s calculated in real-time every 15 seconds during trading sessions, with its components reviewed once a year.

The 225 companies listed on the exchange belong to a number of various industries, including food, automotive, chemicals, mining, pharmaceuticals, banking and financial services, shipping, electric machinery, and transportation.

Macroeconomic releases and drivers such as JPY prices can move the Nikkei 225 price quickly. Traders are recommended to follow the Nikkei 225 to ascertain where Japanese stocks are heading, as well as get an idea of sentiment and price action across the whole of East Asia.

Some of the most influential drivers of the index are:

  • Currency Prices: Due to the nature of Japan’s export-led economy, the strength of its domestic currency is a leading decider of the prices of stocks. A strong Yen can result in Japanese products becoming less competitive internationally, which can thus sink stock prices. While a weaker Yen can boost demand abroad and therefore boost revenues, buoying the Nikkei 225.
  • Central Bank Policies: The Bank of Japan’s fluctuating policies can affect borrowing costs and spending patterns by businesses and consumers in Japan. This in turn affects company revenues and therefore stock prices.
  • Economic Data: The price of the index can drop in response to markets falling around the world. It’s also heavily influenced by economic reports such as unemployment rates, job creation, inflation, and other economic benchmarks. An example of one such measure is the US non-farm payroll data, which demonstrates the interrelation between the Nikkei 225 and the Dow Jones.
  • Political turmoil & government policies: As with other indices, any event that affects the political/economic backdrop can hit the index.
  • Natural Disasters: These can have a considerable effect on the Nikkei 225. For example, the 2011 Tōhoku earthquake and tsunami prompted huge selloffs, which led to the index dropping more than 7% in the days following.

How Can I Trade The JP225 / Nikkei 225?

The JP225 is tradable under a single instrument on the TIOmarkets platforms. You can buy (go long) or sell (go short) on JP225 and many other indices.

What Are The Best Conditions For Trading The JP225?

As we saw during the early stages of the covid-19 pandemic, indices across the world can be prone to large swings up or down based on economic turmoil and recovery.

Execution speeds: Slow order processing time can lead to a big difference between the price you see when you click to open a trade, and the actual price your order is opened at. This difference between prices is called “slippage”.

At TIOmarkets, we have some of the fastest execution speeds you can find, resulting in minimal slippage and more orders filled at the price you click.

Leverage: Normally, a large amount of starting capital is required to invest seriously in stocks and indices, because only a small amount of stocks is not likely to yield the kind of results most traders are seeking.

High leverage can greatly increase both the risk to your investment and the potential returns.

If you are comfortable with a high level of risk in return for higher potential gains, you may want to seek a leverage ratio that is commensurate to your investment goals.

Nikkei 225 is a liquid market with a high trading volume, meaning you’ll be able to enter and exit trades with a minimum of slippage and benefit from tight spreads.

Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose. Professional client’s losses can exceed their deposit. Please see our risk warning policy and seek independent professional advice if you do not fully understand. This information is not directed or intended for distribution to or use by residents of certain countries/jurisdictions including, but not limited to, USA & OFAC. The Company holds the right to alter the aforementioned list of countries at its own discretion.

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Trade responsibly: CFDs are complex instruments and come with a high risk of losing all your invested capital due to leverage.