Japan’s stock markets, the Nikkei and Topix, have reached all-time highs. The trading session started off strong, boosted by positive trends from Wall Street. TOPIX, which stands for Tokyo Price Index, includes all domestic companies listed on the First Section of the Tokyo Stock Exchange. It tracks over 2,000 companies and offers a clear view of Japan’s stock market trends.

The Structure Of TOPIX

TOPIX is a market-capitalization weighted index that only considers shares available for trading. This differs from the Nikkei 225, another important index, which is weighted by stock prices. The Nikkei 225 focuses on the top 225 blue-chip companies, while TOPIX gives a broader perspective on the market. Both indexes are crucial for understanding Japan’s economic health and direction. With the Nikkei and Topix reaching new heights, we are in a strong bullish phase. Traders need to evaluate if this momentum can last in the coming weeks. It’s tempting to ride this upward wave, but caution is vital, as markets at all-time highs can be volatile. A major factor fueling this rally is the continuing weakness of the yen, which trades around 158 to the dollar. This benefits Japan’s export-focused companies, increasing their overseas profits when converted back to yen. Data from July 2025 shows strong foreign investment inflows, indicating global confidence in this trend.

The Role Of The Bank Of Japan

The Bank of Japan’s recent choice to keep its accommodative monetary policy helps support the stock market. Unlike other major central banks, the BOJ has shown it won’t rush to tighten policies, keeping borrowing costs low for businesses. This approach encourages investors to stay active in the market. However, it’s essential to remember that the last time the Nikkei reached record highs was in 1989, which led to a sharp and lasting decline. This historical context reminds us that corrections can happen quickly at these elevated levels, and taking measures against potential downturns is wise. To protect against risks, traders might consider buying put options on the Nikkei 225 or Topix futures. The Nikkei Volatility Index has recently climbed to 20, suggesting that while the cost of this protection is rising, it remains reasonable. This way, traders can participate in gains while capping potential losses. For further upside with managed risk, using bullish call spreads on the indexes could be beneficial. This strategy involves buying one call option and selling another at a higher strike price, reducing the cost of the bullish bet. It allows profits if the market continues to rise without exposing traders to unlimited risk. Since Topix represents a broader view of the market, its derivatives may provide a more diversified investment in Japan’s economy. The Nikkei is more influenced by its large-cap, export-oriented companies. A strategy combining long Topix exposure with a hedge on the Nikkei can capture overall market strength while mitigating specific risks. Create your live VT Markets account and start trading now.

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