Nikkei 225

The Nikkei 225 tracks 225 large companies listed on the Tokyo Stock Exchange's Prime Market and is Japan's most widely cited equity benchmark, first calculated in 1950 (with a base date retroactively set to May 1949) and published by Nihon Keizai Shimbun, the Nikkei newspaper.

Like the Dow Jones Industrial Average, the Nikkei 225 is price-weighted rather than weighted by market capitalization — a structural choice inherited from the era when it was designed, deliberately modeled on the Dow's methodology. That means higher-priced constituent stocks move the index more than lower-priced stocks of an equal-sized company.

The index famously peaked near the end of 1989 during Japan's asset-price bubble and then spent decades below that level through Japan's prolonged post-bubble economic stagnation, a well-known case study in long-run market drawdowns before eventually reclaiming and surpassing its old highs in the 2020s. That history makes the Nikkei's long-term chart one of the most frequently referenced in discussions of asset bubbles and "lost decade" economics.

A significant share of Nikkei 225 constituents are large exporters — automakers, electronics manufacturers, and industrial machinery makers — whose overseas earnings become more valuable in yen terms when the Japanese currency weakens. That makes the index unusually sensitive to yen exchange-rate moves: a weaker yen has historically tended to boost the Nikkei even without any change in the underlying companies' operations, simply by inflating the yen value of foreign revenue.

The Bank of Japan's monetary policy has been an outsized driver of Japanese asset prices for decades, including an extended period of near-zero and negative interest rates and a "yield curve control" policy aimed at keeping long-term government bond yields pinned near a target level — a markedly different stance than most other major central banks maintained over the same period, and one that shaped both the yen's exchange rate and Japanese equity valuations.