The Tokyo Stock Exchange Within The Global Economy  

The Tokyo Stock Exchange (TSE) is the fourth largest stock exchange in the world in terms of listed companies (2,400) and market cap ($4.4T).  It is the largest stock exchange in Asia, and during the 1980's was the biggest in the world, having overtaken the London and New York Stock Exchanges.

The Tokyo Stock Exchange (TSE)

Many of the companies listed on the TSE are just as well-known to the public as those from the NYSE. These companies include Ricoh, Nikon, Japan Airlines, Panasonic, Sony, Canon, Mitsubishi and Toyota. 

Tokyo Stock Exchange History

Although the Tokyo Stock Exchange isn't one of the oldest stock exchanges in the world, by Asian standards it is fairly old, since it first opened in 1878. 

In Japan during the 19th century, the event had profound impact.  Many Western standards were copied by Japan during the Meiji era, and at the time the TSE wasn't the only stock exchange in Japan that opened. During the late 19th century to early 20th century, the country had 11 stock exchanges open. During World War II all of them merged with the TSE.     

Following World War II, trading on the TSE was suspended. However, it resumed again during the 1950s. This is when the united TSE was true success for the first time. Japan from the 1960s to the 1980s was the embodiment of the "Asian economic miracle." The impossible was accomplished by the Tokyo Stock Exchange when it became first in the world in terms of market capitalization by overtaking both the LSE and NYSE. Just like currently 60% of the total market cap in the world is traded on the NYSE, during the 1980s that same percentage of the total market cap in the world was traded on the Tokyo Stock Exchange.  

The Japanese stock market, however, turned into a bubble. Japanese companies were overestimated by the world, and the investors started losing interest in them after 1990. The Japanese asset price bubble began to deflate. Unlike a lot of other bubbles from the world economy's history that just burst, and make some companies richer while others went out of business, this bubble had a severe impact on the entire economy of the country. It turned out to be a slow and painful deflation. The Japanese refer to the 1990s as the "lost decade."  

During the 1990s, the Tokyo Stock Exchange lost is lead once again to the NYSE. It was overtaken by the LSE and NASDAQ as well in 2010. The TSE currently holds fourth place in the world by market cap. However, outside of the Western world it holds first place still. The Japanese economy informally continues to be highly regarded. Even individuals who are not knowledgeable about economics are able to name at least five major Japanese companies (normally electronic and car companies. The same cannot be said for French or British companies. 

The Nikkei 225 Index

This is one of the world's the most well-known stock market indexes. Most modern indexes are proportional to a certain group of companies' total market cap (like the S&P index being proportional to the U.S. 500 largest companies total market cap). However, the Nikkei 225 index is instead proportional to the the total price for the Tokyo Stock Exchange's 225 most popular shares. The FTSE 100, NASDAQ Composite, S&P 5000 and most other well-known indices are weighted based on capitalization. By contrast, the Nikkei 225 (along with the outdated Dow Jones index) are weighted by price instead.  

Price weighting results in the index being more significantly impacted by companies that have more expensive shares instead of those that are just larger (and due to that, you can't see what the actual size of these companies are from the index). Such indices, however, still provide information that is meaningful regarding the activity of the companies in the country.   

The dot-com bubble plays a significant role in the index graphs of the NASDAQ, and the Japanese asset price bubble also plays a major role in the Nikkei 225's graph. Prior to 1990, the Japanese stock market and economy was experiencing a big boom. However, that was followed by a recession. This negative trend is evident on the graph until 2012 (at a time when the index was at the same level that it was in 1985), and it is just now that there are starting to be hints of the effects of the bubble starting to be overcome.   

You can purchase ETF shares on the TSE of the Nikkei 225 with the 1321 ticket symbol that tracks the value of the index. Purchasing Nikkei 225 ETF shares basically means you are investing in the 225 most popular shares on the TSE. 

What Investors Need To Remember 

Asian stock markets are less popular with online brokers compared to American and European ones. However, many provide access to the TSE, since it is the leading stock exchange in Asia. The broker obviously needs to provide direct market access (DMA) instead of just making contract for difference (CFD).

All companies that are listed on the Tokyo Stock Exchange may be viewed on the Stock Screener service located at finance.google.com (in the first box choose "Japan" and in the second choose "Tokyo Stock Exchange"). Let's take a look at which are the leading companies for the year according to various criteria. 

The automobile giant Toyota Motor is the undisputed leader in terms of market cap (market cap of $201B and ticker symbol 7203). The robot and device engineering company Hirata has the highest 52-week price increase (588% 52-week price increase, market cap of $660M, ticker symbol 6258). Over the past five years the highest earnings increase is shown by the IT support company Tecnos Japan (382% 5-year earnings increase, market cap of $208M, ticket symbol 3666). The most expensive shares are from Hoshino Resort REIT Toshi Hojin, a real estate investor ($12,000 share price, market cap of $1.0B, ticket symbol 3287).

The working hours of the Tokyo Stock Exchange are 3-9 Moscow time (9-15 Tokyo time). Usually the commissions taken by online brokers with the TSE are a percentage of the total amount that is being traded. They are typically higher than the commissions taken with European exchanges. They are usually about 0.1% or higher. Usually the minimum commission is about $1, which is close to minimum commissions on the American stock exchanges.


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