Nikkei Index Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The Nikkei Index reflects a number that expresses the market-value-weighted average of a group of stocks. There are five Nikkei indices: the Nikkei 225, Nikkei 500, Nikkei 300, Nikkei JASDAQ, and Nikkei All Stock Index. The Nikkei 225 is the most widely tracked Japanese stock market index in world. Other popular Japanese stock market indices are the Tokyo Stock Price Index (TOPIX) and Nomura 400. Similar to broad-based stock market indices in other countries, the Nikkei 225 is an indicator of future economic performance of the overall economy. It is composed of the most liquid 225 stocks on the Tokyo Stock Exchange (TSE) First Section. These 225 companies represent about 69 percent of the total current profits and 68 percent of total assets of all TSE First Section companies. At the end of 2007, there were 2,976 publicly traded companies in Japan. The number of public companies listed are TSE (2,389), TSE First Section (1,727), TSE Second Section (467), and TSE Mothers (195).

Nikkei 225 is calculated and published by the privately held Nikkei Inc. (Nikkei). Nikkei was established in 1876 and is the parent company of Japan’s largest daily business newspaper, Nihon Keizai Shimbun. Occasionally, Nikkei removes stock issues from the index and replaces them with other issues because of bankruptcies, mergers, and annual reviews in consideration of changes in each stock’s liquidity and Japan’s industrial structure. Nikkei uses industry sector rebalancing rules to assure that the index reflects possible changes in Japan’s industrial structure. The 225 stocks that compose the index are grouped into six sectors: Technology, Financial, Consumer Goods, Materials, Capital Goods/Others, and Transportation/Utilities. The six sectors are composed of 36 industries: (1) Technology: pharmaceuticals, electrical machinery, automobiles, precision machinery, telecommunications; (2) Financial: banks, securities, insurance, miscellaneous finance; (3) Consumer Goods: marine products, food, retail, services; (4) Materials: mining, textiles, paper and pulp, chemicals, oil, rubber, ceramics, steel, nonferrous metals, trading companies; (5) Capital Goods/Others: construction, machinery, shipbuilding, transportation equipment, miscellaneous manufacturing, real estate; and (6) Transportation/ Utilities: railroads and buses, trucking, shipping, airlines, warehousing, electric power, gas.

The Nikkei 225 is modeled after the Dow Jones Industrial Average (DJIA). As with the DJIA, it is a price-weighted average of stocks in the index. The DJIA consists of just 30 stocks and is much older. DJIA was first published in May 1896 by Charles Dow, former editor of the Wall Street Journal. The Nikkei 225 was created in 1950. Since its beginning, the Nikkei 225 has been calculated using the Dow Jones method. Ex-rights-adjusted prices of 225 stocks are summed and divided by a “divisor,” which on July 28, 2008, was 24.424. The divisor is occasionally adjusted to maintain consistency as firms enter and exit the index.

The Bubble Economy

Nikkei 225 peaked at 38,916 Japanese yen on December 29, 1989, its highest level ever. At the peak, market capitalization of TSE-listed shares accounted for 97 percent of the market capitalization of all Japanese equity markets combined and was roughly equivalent to the collective market capitalizations of the New York Stock Exchange, London Stock Exchange, Deutsche Borse, Swiss Exchange, Borsa Italiana, and BME Spanish Exchanges. From 9,703 yen in 1984, the index soared 300 percent over five years, creating one of two colossal “asset price bubbles” experienced by Japan during the latter half of the 1980s—reminiscent of the manias recounted in Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds: Tulipomania, the South Sea Bubble, and the Mississippi Scheme of the 17th and 18th centuries. In addition to the stock market bubble, another bubble appeared in Japan’s real estate market. The market value of one square meter of land in Tokyo’s Ginza district rose to US$1.5 million. According to some estimates, the market value of the Imperial Palace grounds in central Tokyo was higher than all of the land in California.

The Nikkei 225 descent from the peak was nearly as steep as the climb had been. Between 1990 and 1991, the index descended rapidly, falling to as low as 14,309 yen—a loss of 63 percent of market value in just over two years. By 2003 it sank further to as low as 7,608 yen, equal to only 20 percent of value at the December 1989 peak. On October 20, 1987, as the bubble was forming, the Nikkei 225 experienced the largest percentage decline in its history, falling 14.9 percent in a single day—so-called Black Tuesday, coming on the heels of Wall Street’s Black Monday, when on October 19, 1987, the DJIA fell 22.6 percent, its largest, single-day decline in history. On October 2, 1990, during one of the worst long-term market declines in Japanese stock market history, the index experienced its largest percentage gain in a single day of 13.2 percent.

Other Nikkei Indices

The Nikkei 500 was created in January 1972 and comprises 500 First Section–listed companies. In other important respects, it is similar to the Nikkei 225. The index is reconstituted each year according to changes in trading volume, trading value, and market capitalization. The last reconstitution took place on July 22, 2008. Nikkei introduced the Nikkei 300 in October 1982. The base year of the Nikkei 300 is 1982, with October 1, 1982, equal to 100. As with most other Nikkei indices, component stocks are selected from the TSE First Section. The index is periodically rebalanced in consideration of liquidity, stability, and sector coverage. The Nikkei JASDAQ Average contains all stocks listed on the JASDAQ Securities Exchange.

There are six securities exchange markets in Japan: the Tokyo Stock Exchange (TSE), Osaka Stock Exchange (OSE), Nagoya Stock Exchange (NSE), Sapporo Stock Exchange (SSE), Fukuoka Stock Exchange (FSE), and JASDAQ. JASDAQ is the only one specialized solely in venture firms and small capitalization stocks. Other Japanese exchanges created “sections” that specialize in “small cap” stocks—TSE’s Mothers exchange, OSE’s Hercules exchange, NSE’s Centrex exchange, SSE’s Ambitious exchange, and FSE’s QBoard exchange. In terms of market capitalization, the top four JASDAQ-listed firms are Yahoo Japan Corporation, Rakuten, Jupiter Telecommunications, and McDonald’s Holdings Japan.

Of the 700 IPOs in Japan between 1998 and 2007, 48 percent were listed on JASDAQ. The other 52 percent were listed on Mothers, Hercules, TSE, and other markets. At the end of 2007, the number of listed companies on the following Japanese securities exchanges were: TSE1 (1,727), TSE2 (467), OSE1 (641), OSE2 (249), Hercules (172), Mothers (195), and JASDAQ (976). Note that some companies are listed on more than one exchange. At the end of 2007, the total market capitalization, in trillions of Japanese yen, for each, was: TSE1 (475.6), TSE2 (5.4), OSE1 (322.1), OSE2 (2.1), Hercules (1.7), Mothers (2.8), and JASDAQ (13.4). Total trading value for each, in trillions of Japanese yen was: TSE1 (688.5), TSE2 (3.4), OSE1 (22.9), OSE2 (0.8), Hercules (6.2), Mothers (13.3), and JASDAQ (10.8). The last of the Nikkei indices, the Nikkei All Stock Index, is comprised of all stocks on Japan’s five stock exchanges: Tokyo, Osaka, Nagoya, Sapporo, and Fukuoka. Only JASDAQ is excluded.

Bibliography:

Edwin J. Elton and Martin J. Gruber, Japanese Capital Markets (Harper & Row, 1990);
Chin-Tsai Lin and Yi-Hsien Wang, “The Impact of Party Alternative on the Stock Market: The Case of Japan,” Applied Economics (v.39/1, 2007);
Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (Harriman House, 2003 [1841]);
Nihon Keizai Shimbun, Nikkei Kaisha Joho (in Japanese) (Nihon Keizai Shimbun-sha, 2008).

This example Nikkei Index Essay is published for educational and informational purposes only. If you need a custom essay or research paper on this topic please use our writing services. EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.