Did you know the Nikkei 225 is actually 'inflated'? If you divide the total stock price by '30', it's no wonder it reaches around 40,000 yen

Everyone, are you doing NISA or iDeCo? It's called investing, and I imagine many of you are invested in the Nikkei 225. More advanced users might even be making big bets using leverage, like with Nikkei 225 futures.

I... don't do that. I can't do such things. Today I'm writing about the Nikkei 225, but this isn't about how to make a huge profit or whether it's profitable.

Come to think of it, the Nikkei 225 fell by about 1,000 yen yesterday. It seems to be the 'Trump cannon,' but in reality, I don't really know the truth. However,

Isn't the Nikkei 225 a bit strange?

Would I get in trouble for saying that? Haha. Well, it's just the ramblings of an old guy, so it's fine. I'm just going to own it!

For example, there are things like average salary income or average life expectancy. The former is about 4.6 million yen, and the latter is said to be 81 years for men and 87 years for women. Looking at these, aren't they numbers you can accept as being about right? No, there's the opinion that you can't understand it without looking at the median, but still, they seem plausible, don't they?

However, the Nikkei 225 is roughly 40,000 yen.It's saying that the average stock price of the 225 representative stocks is 40,000 yen.

For example, stocks that come to mind are: Toyota Motor: about 3,000 yen, Nintendo: about 10,000 yen, NEC: about 15,000 yen...That's nowhere near 40,000!

I see, there must be some super expensive stocks like 1 million yen hidden in there. That must be it! Alright, if I list them from the most expensive, it will be obvious!

So, in descending order of price!

Keyence: about 67,000 yen
SMC: about 60,000 yen
Fast Retailing: about 50,000 yen
Disco: about 44,000 yen
Tokyo Electron: about 26,000 yen

Oh, wait? This is strange. It's weird. There are only 4 stocks over 40,000 yen. There are no stocks pushing it up explosively, andfrom the 5th one onwards, they are 26,000 yen or less, andno matter how you look at it, the average doesn't reach 40,000 yen!

So, today I calculated the Nikkei 225 myself. When I did it, I thought 'huh,' and at the same time, I wondered if this really represents the reality of Japan. So I'd like to write about what I noticed. (It seems to have gotten a bit long. Sorry 🙇)

The Nikkei 225 is the modified simple average of 225 stocks representing Japan

The word 'modified' bothers me, but basically, the formula is that you can calculate the Nikkei 225 stock price by adding up all the Nikkei 225 stocks and dividing by 225.

Total of 225 stock prices ÷ 225 = Nikkei 225 stock price
*Actually, it's a bit different!💦

So, let's calculate it. The total stock price of the 225 Nikkei stocks as of January 31, 2025, was1,005,988 yen.

Now, if we divide this by 225, there it is!
Nikkei 225 =3,945 yen!

What?! Is the Nikkei 225 in the 3,000 yen range? Is there some mistake???
But if you actually add up the 225 stocks, it comes to the 3,000 yen range. I was surprised when I calculated it.

Nikkei 225 trick 1: Stock price conversion factor

Stock price is the price per share relative to market capitalization. Even if a stock price is low, if many shares are issued, the market capitalization is high; conversely, even if market capitalization is low, if the number of issued shares is small, the stock price will be high.

For example, if Company A has a stock price of 100 yen per share and 100 shares issued, the market capitalization is 10,000 yen.

On the other hand, Company B has a stock price of 1,000 yen per share, but with only 10 shares issued, its market capitalization is also 10,000 yen.

However, A is 100 yen and B is 1,000 yen. If the Nikkei 225 only consisted of these two companies, the Nikkei 225 stock average would be (100 yen + 1,000 yen) ÷ 2 = 550 yen.

Now, suppose Company B announces a 10-for-1 stock split.
Then, Company B's price per share becomes 100 yen, just like Company A, and the Nikkei 225 stock average becomes (100 yen + 100 yen) ÷ 2 = 100 yen.

After the stock split, it's a massive 82% crash from 550 yen to 100 yen!

To prevent this, Company A is assigned a coefficient of 10, and Company B a coefficient of 1.
Then, the Nikkei 225 stock average becomes (100 yen × 10 + 1,000 yen × 1) ÷ 2 = 1,000 yen.

Even if Company B performs a stock split and turns 1 share into 10, the coefficient is raised from 1 to 10, so the Nikkei 225 stock average becomes (100 yen × 10 + 100 yen × 10) ÷ 2 = 1,000 yen, successfully absorbing the impact.

You can download the stock price coefficients here | The range between the minimum and maximum coefficients is 150 times.

Looking at the coefficients, the minimum is 0.1 and the maximum is 15. In other words, a 150-fold difference is applied. It is not the case that low-priced stocks have higher coefficients.

Currently, the most influential companies are Fast Retailing and Tokyo Electron; they have high stock prices and high coefficients, so they heavily influence the Nikkei 225.

By the way, Fast Retailing was adopted in 2005, and Tokyo Electron was adopted in 2000.

Applying the coefficients, the total stock price of the 225 Nikkei issues as of January 31, 2025, was 1,203,493 yen. Dividing this by 225 issues... it becomes 5,349 yen, which is still strange lol

It seems there is still a mystery to be solved.

Nikkei 225 Mechanism 2: Considering the Divisor

The divisor is the number used to divide the total amount. It is 225 for the 225 issues, but this also undergoes adjustments. Of course, the initial Nikkei 225 divisor was 225.

However, the Nikkei 225 components change. It is necessary to replace them with stocks that represent Japan and reflect the actual situation, but if the Nikkei 225 were to change drastically due to that, it would be a major problem.

For example, if there are companies A, B, and C, all with a stock price of 300 yen, then 300 yen × 3 = 900 yen, and dividing by the divisor of 3 gives a Nikkei average of 300 yen. If you replace one with a 600 yen stock, it becomes 300 yen × 2 + 600 yen × 1 = 1,200 yen. If you divide this by the divisor of 3, it jumps to 400 yen, so you adjust the divisor to 4 to keep the average at 300 yen.

In this way, the divisor changes moment by moment, such as dividing by 4 companies when there are originally 3.

The current divisor is around 30 | The Nikkei 225 reaches around 40,000 yen

Since the divisor is now around 30,1.2 million ÷ 30 ≒ 40,000 yen, which is almost exactly the Nikkei average!

Thinking about why the divisor dropped from 255 to 30

Even so, it is interesting to consider that the divisor has dropped from 225 to 30. This is because, historically, prices rise and companies develop. When that happens, stock prices tend to go up.

When stock prices rise, it is expected that higher-priced stocks will be included during stock replacement, so if the coefficient is not kept high, such as 226 or 230, the average stock price will rise.

However, it is now moving in the opposite direction of 30. It is true that the bubble burst and stock prices fell, but stock splits seem to have had a greater impact.

When the price per share becomes high, it becomes difficult to buy because a lot of money is required. In such cases, companies perform stock splits to lower the stock price.

When you lower it, you have to make the divisor smaller, otherwise the stock price will fluctuate!

It is interesting to look at the contribution from the stock conversion coefficient and the divisor

With this coefficient and divisor, if I may say so without fear of misunderstanding, the stock price is distorted and reflected in the Nikkei average.

The far right shows the stock price and contribution of automobiles calculated based on the coefficient and divisor. It shows how much the Nikkei average price is affected when each stock price moves by 1%.

As expected of Toyota, when it moves by 1% (nearly 300 yen), it moves the Nikkei average by nearly 5 yen.
Next is Honda, and these two companies are very strong in Japan right now.

On the other hand, when Mitsubishi moves by 1% (about 46 yen), it only moves by 0.02 yen. Even if it moves by 10%, it is only 0.2 yen. It is designed so that the impact of giant blue-chip companies stands out.

These are the dangerous ones with high influence

The above are those with a contribution of 10 points or more. When they move by 1%, the Nikkei average moves by 10 yen or more. Especially Fast Retailing (Uniqlo) moves by 45 yen, soif Uniqlo drops by 10%, the Nikkei average will drop by 450 yen just from that.

In contrast, theMitsubishi Motors mentioned in the previous section only moves the Nikkei average by 0.2 yen even if it moves by 10%. Frankly speaking, it's a dead calm.It only moves about 40 yen when the stock price is 0 yen (bankruptcy), so it's as calm as it gets.

Summary: The Nikkei average looks inflated because it divides the sum of adjusted stock prices by 30, not 225

In conclusion,Nikkei Average = Sum of adjusted stock prices (numerator) ÷ Divisor (denominator).

The numerator of the Nikkei average was calculated by multiplying the stock price by the stock conversion coefficient. The sum of those is the numerator. Without the coefficient, it would be about 1 million yen, but with the coefficient, it is about 1.2 million yen. (Is it just my imagination that it seems surprisingly low?)

And the divisor, which is the denominator, is divided by 30, not the number of stocks, 225. This is surprising. It seems that when calculated historically without breaks, corrections were added and it ended up like this, butdividing by 30 companies when it should be 225 companies feels like padding [in other words, inflating it], and I felt a bit strange about it.

3-line diary: Even if it's something you already know, there are discoveries when you actually try it.

Even if you don't actually do it, the answer is already there. It might be something that predecessors have already done. However, re-experiencing the discovery by doing it yourself becomes a first-time experience for you.

And that first-time experience is something many people have not experienced. I feel that there is a big difference between knowing something through knowledge and knowing it by actually doing it, even if both are called 'knowing'.

1 year ago: It seems it was a hazy Sunday.

It seems it was a hazy Sunday a year ago. I feel hazy looking at this article. This is not directed at the other person, but rather I feel hazy about myself for feeling that way. I wonder if I should have met them more. I wonder if I felt something back then. That is how I feel.

Thank you for reading until the end. If you liked the article, I would be happy if you could follow or support me. I also look forward to your casual comments.