What Is the Tokyo Price Index?

The Tokyo Price Index – commonly referred to as TOPIX – is a metric for stock prices on the Tokyo Stock Exchange. TOPIX is a capitalization-weighted index that lists all firms in the "first section" of the TSE, a section that organizes all large firms on the exchange into one group. The second section of the TSE pools all of the smaller remaining companies.

Understanding the Tokyo Price Index

Compared to the Nikkei, or Japan's Nikkei 225 Stock Average, the TOPIX is considered a more appropriate representation of all the Japanese stock markets because it reflects a fairer depiction of price changes and includes the largest companies trading on the TSE. In comparison, the Nikkei is weighted by price and is composed of only the top 225 blue-chip companies listed on the TSE.

The Sector Indices of TOPIX

TOPIX shows the current market capitalization of companies assuming that market capitalization as of the base date (Jan. 4, 1968) is 100 points. The measure is used to determine the overall trend in the stock market and is used as a benchmark for investors.

The sector indices of TOPIX are composed of indices created by dividing the constituents of TOPIX into 33 categories. These categories are determined according to the industrial sectors defined by the Securities Identification Code Committee. They include but are not limited to, construction, textiles and apparels, nonferrous metals, machinery, electric power and gas, land and air transportation, retail trade, banks, securities and commodity futures, real estate, insurance, agriculture and forestry, pharmaceuticals and iron and steel.

TOPIX has some subindices that are also published by the TSE. These include, but are not limited to, the TOPIX New Index Series, size-based TOPIX subindices, TOPIX sector indices, the Tokyo Stock Exchange Composite Index Series, the Tokyo Stock Exchange Dividend Focus 100 Index, the Tokyo Stock Exchange REIT Property Sector Index Series and the Tokyo Stock Exchange Mothers Index.

TOPIX as Free Float Index

In a series of three phases, TOPIX transitioned from a system that weighted companies based on a collective total figure of outstanding shares to a system that weights companies based on the total number of shares available for trade. This is known as a free float. TOPIX’s transition began in 2005 and was completed in the summer of 2006.

Although this transition is, essentially, a technicality, it has had a substantial impact on the actual weight of companies listed in the index. This is because a large majority of companies in Japan also have significant holdings of shares in their business partners to maintain sophisticated and strong business alliances, and these shares are no longer included in the index's company weight calculation.