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Our History 4: The Nikkei Stock Average - Over 70 Years of Tracking the Japanese Economy


The Nikkei Stock Average is widely known as a representative index that tracks stock market movements in Japan. Nikkei Inc. calculates and publishes the index from 9:00 a.m. to 3:00 p.m. on all weekdays when the Tokyo Stock Exchange (TSE) is open.

Operational Control, from TSE to the Nikkei Group
The origin of the Nikkei Stock Average can be traced back to September 7, 1950, when the TSE first began publishing what was then termed the "TSE Adjusted Stock Average." Stock trading had been suspended during World War II, but it was resumed on May 16, 1949. With this date as the starting point for calculation, the TSE Adjusted Stock Average has been used under different names for more than 70 years. This index offers a clear reflection of the Japanese economy, which has undergone constant and profound change from the post-war reconstruction period through the Income Doubling Plan of the 1960s, the bubble economy, the period of the extremely strong yen, and the more recent "Abenomics" policies.

A turning point in the history of the Nikkei 225 occurred in the late 1960s. At that time, the chairman of the board of directors of the TSE argued for the necessity of calculating the price movements of the wider market rather than using a limited basket of stocks. As a result, the TSE introduced the Tokyo Stock Price Index (TOPIX) in 1969. However, newspaper articles at that time stated that "the TSE should not underestimate the fact that the older index has already been in existence for 20 years" and indicated a strong demand for its continuation. For this reason, the Nikkei Group took over the calculation and management of the index, and in 1971, Nihon Short-wave Broadcasting Co., Ltd. (now Nikkei Radio Broadcasting Corp.) changed its name and began to publish it as the "NSB225 Adjusted Average."

The 1970s saw the increasing computerization of stock trading, and the infrastructure used to process large volumes of data developed rapidly. Nikkei started to provide the "NEEDS" service in September 1970, making available a database of economic and corporate financial information. In October 1971, Quotation Information Center (now known as QUICK) was established, offering "QUICK Video-1," a small video terminal used to monitor stock prices in real time. In this environment, stock indices became even more important for keeping up with the movements of the stock market. On May 1, 1975, Nikkei signed an agreement with Dow Jones & Company, Inc. for rights to the naming and calculation of the Dow method, and it began to publish the "Nikkei Dow-Jones Stock Average" index.

According to the 100-Year History of the Nikkei (compiled in 1976), the publication of a stock price index with the word "Nikkei" in its name was "a longstanding wish of the head office, which aims to become a comprehensive information organization for the economy." The Nikkei Dow-Jones Stock Average grew in prominence, keeping pace with the expanding Japanese economy. In May 1985, the name of this index was changed to the current "Nikkei Stock Average," and in October of the same year, the Nikkei Stock Average began to be calculated at one-minute intervals during trading hours.

The Advent of New Derivative Products
Since the 1980s, financial technology has seen accelerating development, and asset management needs have become more diverse. It was during this period that many financial derivative products emerged, including futures linked to stock indices. The Nikkei 225 futures started trading on the Exchange in Singapore in 1986, subsequently spreading to Osaka and Chicago and most recently becoming available in Brazil in 2019.

As a form of asset management familiar to many individual investors, exchange traded funds (ETFs) emerged especially since the ETFs linked to the Nikkei 225 first became available in Japan in 2001. In Europe and Asia, Nikkei 225-linked ETFs have been introduced for those looking to invest in the Japanese stock market.

In order to meet expanding investment needs and to communicate market sentiment more rapidly, the Nikkei 225 calculation intervals were shortened from once every minute to once every 15 seconds on January 4, 2010, and the frequency was stepped up to once every 5 seconds on July 18, 2017.

In response to the growing importance of the index, in 2010 Nikkei established the Index Business Office, which specializes in management and licensing related to the company's indices. In addition to the Nikkei 225, the Index Business Office has been listening to the voices of market participants and has launched a series of other indices that meet various asset management needs. As examples, the Nikkei Stock Average Volatility Index tracks investor expectations about future fluctuations of the Nikkei 225, while the Nikkei 225 Leveraged Index and Nikkei 225 Double Inverse Index are useful for those interested in high-risk, high-return types of investment. These variants of the Nikkei 225 have been accepted and widely used by the investors and the market participants.

Encouraging the Shift from Savings to Investment
In addition to those based on the Nikkei 225, Nikkei is calculating, publishing, and planning a growing number of indices. An index focused on REITs (Real Estate Investment Trusts) gives special attention to ESG (Environmental, Social and Corporate Governance) issues, and a series of indices cover companies based in various Asian countries. Recent additions include the Nikkei 225 High Dividend Yield Stock 50 Index, the Nikkei 225 Global Exposure 50 Index (tracking Japanese companies with high overseas sales), and the Nikkei Asia300 Investable Index (composed of 300 Asian listed corporations). By introducing a multiplicity of indices in a market characterized by proliferating investment methods and strategies, Nikkei is contributing to the asset-building efforts of the Japanese people and encouraging the trend of "investment instead of savings."

As a news organization, Nikkei has a corporate policy of fairness and neutrality. This is why Nikkei selects the constituent stocks of its indices based on published selection rules and conducts calculations based on certain formulas using the prices from exchanges. Such practices allow the company to avoid arbitrariness in its indices. The constituent stocks of the Nikkei 225 are reviewed once each year in autumn, taking into consideration market liquidity and the balance among industries. The Nikkei 225 is structured with the goal of providing the world with an accurate way to measure the "temperature" of the stock market. As a result, it is valued for its contributions to the sound development of the market and improved portfolio management.

As a part of the openness that characterizes its index management, Nikkei introduced a consultation program in 2020 to solicit a wide range of opinions. In July 2021, Nikkei decided to make some changes to the calculation methodology and stock selection criteria of the Nikkei 225, taking into account the opinions expressed in the consultation.

The market environment remains in a state of ceaseless change. Nikkei will continue to make efforts not only to enhance the indicative value of its indices but also to increase their convenient nature. Backed by a legacy stretching back more than 70 years, Nikkei's indices never stop responding to the requirements of investors.


Nikkei Inc.

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