As of January 1, 2025, Japan’s Nikkei 225 index has a trailing price-earnings (P/E) ratio of 15.72 and a forward P/E of 14.64. The cyclically adjusted CAPE ratio stands at 26.14. As one of the most widely tracked indices, the Nikkei 225 serves as a key benchmark for the Japanese equity market.

In recent years, earnings growth for Japanese companies has been sluggish. However, conditions began to improve in late 2023, and 2024 saw a strong rebound in corporate earnings. Analysts expect earnings growth to continue into 2025, though at a more moderate pace compared to the previous year.

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Nikkei 225 Index: P/E (TTM & Forward), Earnings Per Share (TTM & Forward), & CAPE Ratio

* The table presents both trailing and forecasted Earnings Per Share (EPS), with values indexed to a base of 100 as of January 1, 2022. EPS (TTM) reflects the aggregate earnings of the Nikkei 225 index stocks for the past 12 months and is calculated using the net income of the companies. EPS (Forward) is the forecasted (analyst consensus) earnings per share for the next 12 months and is calculated using the estimated operating profit of the companies.

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Nikkei 225 Index Overview

The Nikkei 225 is Japan’s most widely tracked stock index and serves as a key benchmark for the Japanese stock market. It represents the performance of 225 major blue-chip companies listed on the Tokyo Stock Exchange (TSE), offering insights into the overall health of Japan’s economy.

Unlike most global indices that use market capitalization weighting, the Nikkei 225 follows a price-weighted methodology, meaning stocks with higher share prices have a greater impact on index movements. This approach is similar to that of the Dow Jones Industrial Average (DJIA) in the United States.

As of January 1, 2025, the companies with the largest weightings in the index include Fast Retailing Ltd, Tokyo Electron Ltd, Advantest Corp, SoftBank Group Corp, and KDDI Corp. Notably, these are not Japan’s most valuable companies by market capitalization. For example, Toyota Motor Corp has a relatively small weighting of 1.29%, and Sony Group Corp has a weighting of 1.38%, despite being the country’s largest corporations. This highlights a key limitation of the price-weighted methodology, as it does not reflect company size in the same way that market cap-weighted indices do.

When calculating the price-to-earnings (P/E) ratio of the Nikkei 225, we use a market cap-weighted approach rather than a price-weighted one. This ensures that the P/E ratio is comparable to other widely used indices, most of which are based on market capitalization weighting.

In recent years, the Nikkei 225 has delivered strong performance, supported by corporate governance reforms, stock buybacks, and strategic shifts in investment by the Government Pension Investment Fund (GPIF)—one of the world’s largest institutional investors. The index is significantly influenced by factors such as Bank of Japan (BOJ) monetary policy, currency fluctuations, and global trade conditions, making it an important indicator for both domestic and international investors.