The Nikkei 225 tells you what Japan’s most expensive stocks did; TOPIX tells you what the Japanese market did. Because the Nikkei weights companies by share price rather than by size, a handful of high-priced names — Fast Retailing, SoftBank Group, Tokyo Electron — can move it two or three times as much as the broad market on any given day. The working rule this guide builds toward: quote the Nikkei, but measure with TOPIX, and watch the NT ratio to see when the gap between them is stretching.
Why this matters was on full display on Friday, July 24, 2026. The Nikkei 225 fell 2.73% to close at 64,611.15, driven by a broad retreat in semiconductor and AI-related shares: SoftBank Group dropped 7.1%, Advantest 6.0%, Tokyo Electron 5.0%, and Disco 12.3%. Yet TOPIX, which we quote via the 1306 ETF proxy, lost only 1.09% the same day. A 2.7% headline decline alongside a 1.1% broad-market decline is not a contradiction. It is the two indices doing exactly what they are designed to do, and understanding the difference is one of the most useful pieces of mental furniture a Japan investor can own.
Two Indices, Two Philosophies
The Nikkei 225 (Nikkei Heikin, “Nikkei average”) is calculated by Nikkei Inc., the newspaper publisher, with history stretching back to 1950. It contains 225 stocks selected by committee for liquidity and sector balance, and it is price-weighted: the index is essentially the sum of adjusted share prices divided by a divisor. Each stock’s raw price is scaled by a price adjustment factor (the modern successor to the old minashi gakumen, or “presumed par value” system) so that splits and corporate actions do not distort the index, and Nikkei Inc. has introduced capping rules to trim the most outsized weights. But the core logic is unchanged: a ¥60,000 stock matters far more than a ¥3,000 stock, regardless of how big the underlying company is.
The TOPIX (Tokyo Stock Price Index) is calculated by the Japan Exchange Group (JPX). It historically covered essentially the entire first section of the Tokyo Stock Exchange — well over 2,000 names — and a multi-year reform following the 2022 market restructuring is gradually trimming the list toward more liquid, higher-float constituents. It is free-float market-cap weighted: each company counts in proportion to the market value of its shares actually available for trading. Big companies move it; expensive share prices do not.
| Nikkei 225 | TOPIX | |
|---|---|---|
| Operator | Nikkei Inc. | Japan Exchange Group (JPX) |
| Constituents | 225, committee-selected | Broad market (reform is narrowing the list) |
| Weighting | Share price (adjusted) | Free-float market cap |
| Dominated by | High-priced stocks (Fast Retailing, SoftBank Group, Tokyo Electron) | Largest companies (Toyota, megabanks, Sony) |
| Best used for | Sentiment, headlines, derivatives | Benchmarking, breadth, sector analysis |
Why a ¥76,000 Stock Moves the Nikkei More Than Toyota
Price weighting produces a result that surprises almost everyone the first time they see it. As of the July 24, 2026 close, Fast Retailing (9983) traded at ¥76,220 per share while Toyota (7203) — one of the largest companies in Japan by market value — traded at ¥2,897. In a purely price-weighted sum, a 1% move in Fast Retailing shifts the index roughly 26 times more than a 1% move in Toyota, because 1% of ¥76,220 is simply a much larger number of yen than 1% of ¥2,897. Adjustment factors and caps soften this in practice, but they do not reverse it: Fast Retailing has historically commanded on the order of a tenth of the entire Nikkei by itself, and the top handful of high-priced names together drive a disproportionate share of daily moves.
In TOPIX the ranking flips. Toyota, the megabanks, and Sony sit near the top because they are enormous companies with large free floats; Fast Retailing carries a much smaller weight because its market value is smaller and much of its stock is closely held. Same market, same day, two very different lenses.
A Worked Example: Reading the Divergence of July 24, 2026
Here is how to read an actual divergence, step by step, using verified figures from that session.
- Measure the gap. Nikkei 225: −2.73% (close 64,611.15). TOPIX via the 1306 ETF proxy: −1.09%. The gap is roughly 1.6 percentage points — the Nikkei fell about two and a half times as hard as the broad market. Any gap above a full percentage point deserves investigation.
- Check the high-priced heavyweights first. SoftBank Group (¥5,500) fell 7.06%, Advantest (¥28,945) fell 6.02%, Tokyo Electron (¥62,660) fell 4.99%. Note that Fast Retailing — the biggest weight of all — fell only 1.13%; the damage was concentrated in the tech and AI cluster, not spread across all heavyweights.
- Cross-check breadth. Of the 17 TOPIX-17 sector proxies, 7 actually advanced that day: Pharmaceuticals gained 2.37%, Financials ex-Banks 1.44%, Power & Gas 0.92%. MUFG, Japan’s largest bank, rose 0.11%. The laggards — Electric & Precision at −2.36% — map exactly onto the stocks dragging the Nikkei.
- Draw the conclusion. This was a narrow semiconductor and AI drawdown inside a market where defensives and financials were bid, not a market-wide rout. An investor reading only the Nikkei headline would have overstated the day’s damage by a factor of two and a half.
That four-step check — gap, heavyweights, breadth, conclusion — takes about two minutes and works on any session where the two indices disagree.
The NT Ratio: One Number for the Whole Relationship
The NT ratio (NT bairitsu, literally the “N-over-T multiple”) is simply the Nikkei 225 level divided by the TOPIX level. Historically it has sat in the low-to-mid teens. Three practical points:
- A rising NT ratio means the Nikkei’s high-priced growth and tech heavyweights are outperforming the broad market — typical of momentum-driven, semiconductor-led rallies.
- A falling NT ratio means banks, value, and the broad middle of the market are outperforming — typical of rising-rate environments and value rotations.
- The trend matters more than the level. A stretched, still-rising NT ratio signals concentration risk: the headline index is increasingly hostage to a few names, and sessions like July 24, 2026 show how quickly that unwinds.
One consistency warning that applies directly to readers of this site: we quote TOPIX via the 1306 ETF as a proxy rather than the official index level. An NT ratio computed from an ETF price will differ in level from one computed from official index values, even though its direction carries the same signal. Whatever inputs you choose, use the same two series every time — the single most common NT-ratio mistake is comparing a figure built from one pair of sources against a figure built from another.
So Which Should You Watch?
Watch the Nikkei for sentiment and speed. It is the number on every front page, the basis for Japan’s most liquid index futures and options, and the figure your counterparties will quote. When you need a fast intraday read on risk appetite in Tokyo, the Nikkei is the instrument the market itself trades.
Measure with TOPIX. It is the benchmark for the vast majority of Japanese institutional mandates, the base for the TOPIX-17 sector framework, and a far better answer to the question “how did Japanese equities actually do?” It is also the index the Bank of Japan settled on for its ETF purchase program, which since 2021 has bought TOPIX-linked funds only — a structural endorsement of the broader gauge.
Three failure modes to avoid:
- Treating a Nikkei move as “the market.” On concentrated days the two indices can tell opposite stories about breadth, as the July 2026 example shows.
- Comparing valuation metrics across weighting schemes. A price-weighted index’s aggregate P/E or yield is tilted toward whatever its expensive stocks happen to be; compare like with like.
- Ignoring index reviews. Nikkei constituent changes are decided by committee and implemented on scheduled review dates; additions of high-priced stocks can meaningfully change the index’s character overnight. Check the current methodology on the official Nikkei Indexes site rather than assuming last year’s weights.
FAQ
Is TOPIX always the better index?
No — it is the better benchmark, not always the better tool. If you trade Japan through derivatives, hedge with futures, or care about what global headlines will say, the Nikkei is the relevant instrument. The mistake is not watching the Nikkei; it is watching only the Nikkei.
Why does the Nikkei get all the headlines if TOPIX is broader?
History and liquidity. The Nikkei has been published since 1950, giving it decades of continuity in public memory, and the deepest Japan index derivatives are built on it. Media momentum follows tradability.
What is a “normal” NT ratio?
Historically the low-to-mid teens, but there is no magic threshold. Treat it as a trend indicator of concentration versus breadth, computed from a consistent pair of sources, rather than a level to be traded mechanically.
How can I get exposure to each index?
Both have large, liquid ETFs listed in Tokyo — the 1306 ETF that this site uses as its TOPIX proxy is one example — plus futures and options on each. Which vehicle suits you depends on your account, tax situation, and hedging needs; this guide describes mechanics, not recommendations.
Sources
- Japan Exchange Group — market statistics and TOPIX methodology: www.jpx.co.jp/english
- Nikkei Indexes — official Nikkei 225 methodology and constituent data: indexes.nikkei.co.jp/en
- Bank of Japan — ETF purchase program disclosures: www.boj.or.jp/en
Disclaimer: This is an information and analysis publication, not investment advice. See our Methodology for data sources, standards, and our corrections policy.