Question 1

What is the Nikkei 225?

Accepted Answer

The Nikkei 225 is a price-weighted index of the 225 top blue-chip Japanese equities traded on the Tokyo stock exchange. It can be considered as the Japanese equivalent to the Dow Industrials Index in the U.S. In fact, the Nikkei was previously known as the Nikkei Dow Jones Stock Average. Some of the company’s whose stocks are included in the Nikkei are Sony, Toyota, and Panasonic. The Nikkei 225 is the oldest stock index in Asia.

Question 2

How can I invest in the Nikkei 225?

Accepted Answer

If you wanted to invest directly yourself in the Nikkei 225 you would need to buy equal amounts of each stock in the index, which would be prohibitively expensive for nearly every investor. Even though there is no direct way to invest in the Nikkei 225, but there are exchange traded funds that mimic closely the movements in the Nikkei 225. There are several ETFs that track the Nikkei 225 trade on the Tokyo Stock Exchange. They include Blackrock Japan’s iShares Nikkei 225 ETF, and Nomura Asset Management’s Nikkei 225 Exchange Traded Fund.

Question 3

What is the best strategy for trading the Nikkei 225?

Accepted Answer

Because Japan is an export oriented economy, and the majority of its exports go to the U.S. there is a strong correlation between the U.S. equity markets and Japan’s Nikkei. In many cases the Nikkei will follow the direction set by Wall Street overnight. In addition, because the Nikkei is so export oriented it can be heavily influenced by the value of the Yen. When the Yen is stronger the Nikkei tends to sink, and when the Yen becomes weaker the Nikkei tends to gain. This is because Japanese exporters benefit from a weaker Yen when they repatriate revenue generated overseas.

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