The Nikkei 225, also called the Nikkei Stock Average or simply the Nikkei, is a stock index of 225 blue-chip companies traded on the Tokyo Stock Exchange. The index has been calculated since September 1950, retroactive to May 1949, by the Nikkei, officially called The Nihon Keizai Shinbun, the world's largest financial newspaper. The Nikkei, which is the oldest stock index in Asia, is the headline index and the primary gauge of the Tokyo stock market. It may be described as the Japanese equivalent of the U.S. Dow Jones.
Nikkei and Gold
The relationship between the Japanese stock market and the price of gold is not widely debated. The standard view is that the yellow metal is related to the U.S. equity market, if at all. So let’s analyze the link between the price of the yellow metal and the Nikkei.
As the chart below shows, there is no clear relationship between these two asset classes. There have been both periods of co-movement when Japanese stocks and gold were moving in tandem (the end of 1970s or the first half of 2000s) and periods of negative correlation (the 1980s or the 2010s). This is why gold may also be used as a portfolio diversifier or a safe haven against the Nikkei 225, at least sometimes.
Chart 1: Daily gold prices (yellow line, left axis, London P.M. Fix) and daily quotations of Nikkei Index (green line, right axis) from 1971 to 2017.
Indeed, the negative correlation between gold and Nikkei has been particularly strong since 2011. Before we will analyze it, let’s check how silver has been related to the Japanese index.
Nikkei and Silver
As one can see in the chart below, there is also an ambiguous relationship between silver prices and the Nikkei Index (it should not be surprising, given that silver prices are very closely linked to gold prices). The most clear period of co-movement was again the first half of the 2000s, but there were also periods of negative correlation or independent behavior, for example due to different specific developments in the silver market (see: Silver Thursday).
Chart 2: Silver prices (blue line, left axis, London Fix, weekly averages) and Nikkei Index (green line, right axis, weekly averages) from 1971 to 2017.
Gold and silver often act as safe-haven assets and portfolio diversifiers, but against crashes in the U.S. stock market rather than in its Japanese counterpart. The best example may be the burst of the Japanese real estate and stock market bubbles in the early 1990s. Although the Nikkei plunged, there was no gold/silver bull market. Hence, investors should always analyze the big picture when investing in precious metals, as traders often resort to U.S. Treasuries rather than to precious metals during crises in foreign markets.
Although there is no evident long-term relationship between precious metals and the Nikkei, there has recently been a clear strong and negative correlation between the Japanese stock market and gold, as the chart below shows.
Chart 3: Daily gold prices (yellow line, left axis, London P.M. Fix) and daily quotations of Nikkei Index (green line, right axis) from January 2012 to September 2017.
Why has the Japanese stock market been so tightly correlated with gold since 2012? The answer is: the Bank of Japan and its unconventional monetary policy. In particular, the BoJ’s massive money creation and zero interest rates policy announced in September 2012 led to declines in gold prices. Hence, gold investors should closely watch Japan’s central bank – its monetary policy significantly affects the precious metals market.
We encourage you to learn more about the precious metals market – not only about the link between the Nikkei 225 and gold and silver, but also how to successfully use both silver and gold as an investments and how to profitably trade them. A great way to start is to sign up for our gold newsletter today. It's free and if you don't like it, you can easily unsubscribe.