Cafe de la Bourse reveals the latest developments and analyses around the Nikkei 225 index, a crucial barometer of the Japanese economy and a key indicator for global financial markets. Discover in this article the major sectors and companies of the Nikkei, its historical performance, current trends, and its outlook for trading and investing at the end of 2023 and into 2024. Stay informed with the latest news and forecasts to effectively navigate the Japanese market.
What is the Nikkei index?
The Nikkei 225, often abbreviated to Nikkei, is one of Japan’s most important stock indices and a global benchmark. Launched on September 7, 1950, it is calculated daily by the daily Nihon Keizai Shimbun (Nikkei) and represents the arithmetic average of the prices of the shares of the 225 companies. most liquid listed on the Tokyo Stock Exchange. These companies are chosen from a wide range of sectors, ensuring a diverse representation of the Japanese economy.
Its historical evolution is a mirror of the ups and downs of the Japanese economy. For example, during the economic boom of the 1980s, the Nikkei reached historic highs, only to fall sharply in the early 1990s when the financial and housing bubble burst. This historical volatility shows the extent to which the Nikkei is integrated into the economic fabric of Japan.
How important is the Nikkei in the global economy?
The Nikkei 225 is not only important for investors and Japanese companies. As a barometer of the world’s third-largest economy, it has a considerable impact on global financial markets. Significant movements in the Nikkei not only influence markets in Asia but also have ripple effects in European and American markets, particularly in the technology sectors and manufacturers who are more widely represented there.
Indeed, Nikkei companies and their performance affect not only the Japanese economy but also global supply chains and markets. For example, when a major company like Sony or Toyota announces significant profits or losses, this immediately affects the performance of other multinationals in the world. technology and automotive sector on the other side of the Pacific.
What are the main sectors and companies represented in the Nikkei?
The Nikkei 225 covers a diverse range of sectors, reflecting the diversity of the Japanese economy. We detail below the sectors most represented in the Nikkei index.
Discretionary consumer goods sector (20.4%)
This sector includes companies related to non-essential goods and services, such as automobiles and consumer electronics, with companies like Toyota and Honda.
Industrial sector (19.44%)
This sector is almost as important as consumer discretionary, making up a significant portion of the index with companies like Mitsubishi Corp (conglomerates) and Hitachi Ltd (conglomerates).
Information technology sector (18.83%)
This sector includes companies in the fields of technology and IT such as Panasonic or Sony.
Other Nikkei sectors
The remaining composition of the Nikkei is divided between the healthcare sector (13.12%), the communications sector (11.06%), the consumer staples sector (6.38%), the materials (5.70%), the financial sector (3.11%), the public services sector (1.53%) and finally the real estate sector (0.16%). Important companies include Nippon Telegraph & Telephone Corp (telecommunications services), SoftBank Group Corp (telecommunications services), Daiichi Sankyo Company Ltd (general drug manufacturers), Takeda Pharmaceutical Company Limited (specialty and generic drug manufacturers), and Shin-Etsu Chemical (chemistry).
What’s the latest news on the Nikkei?
The Japanese economy is marked by challenges such as recession, inflation< /span>, and weak consumer spending, but also by signs of recovery and growth supported by domestic demand and government support.
GDP of Japan
Japan’s real GDP exceeded its pre-pandemic level in the second quarter of 2023, recording an increase of 1.2% compared to the first quarter. However, domestic demand remains weak and inflation is relatively high. The projected GDP is expected to grow by 1.3% in 2023 and 1.1% in 2024, mainly driven by domestic demand. Core inflation (excluding energy and food) is expected to increase towards 2% as wage growth picks up and spreads to SMEs in 2024.
However, Japan’s GDP declined faster than expected in the third quarter of 2023, with an annual contraction of 2. 9%, revised from an initial estimate of -2.1%. This recession is attributable to the decline in consumer spending and business investment. Household spending continued to decline in October, indicating weak consumption and prolonged inflation that is discouraging buyers.
Monetary policy of the Bank of Japan
Investors expected Kazuo Ueda – the new governor who took office in April – to position himself in opposition to the previous governor, Haruhiko Kuroda, who defended the policies of ultra-low central bank rates over the past ten years. However, the Bank of Japan has maintained its ultra-accommodative monetary policy, indicating that inflation will continue to be high. Although wage growth has increased this year, there is little evidence that it will outpace inflation anytime soon. The BOJ left monetary policy unchanged at its September meeting, keeping the policy rate slightly below zero and the yield curve control policy pegging the 10-year yield at zero percent.
External demand and confidence of Japanese companies
A weaker global economy has slowed the growth of external demand, despite an easing of supply chain disruptions. The Bank of Japan’s latest Tankan survey revealed a divergence in business confidence between the declining manufacturing sector and the non-manufacturing sector. Inbound tourist numbers are recovering, but remain well below 2019 levels, partly due to the delayed return of Chinese tourists.
