I have been paying close attention to the Japanese stock market recently and have noticed that many people still have some misunderstandings about the Nikkei 225. Rather than saying it is Japan’s S&P 500, it’s better to say it has its own unique character — it is price-weighted rather than market-cap weighted, and this difference can lead to noticeable volatility variations.

First, let’s talk about why it’s worth paying attention to the Nikkei 225 now. From last year to this year, the Japanese stock market has experienced quite a few ups and downs, especially the crash in August last year, where it dropped over 2,000 points in two trading days, which really scared a lot of people. But the rebound was also quite rapid, and after entering 2025, the rally accelerated, directly breaking through the 65,000-point mark. The logic behind this is actually simple: the global AI boom has driven Japan’s semiconductor and industrial stocks, combined with continuous foreign investment inflows, and the weakening yen has also helped a lot.

Looking at the components of the Nikkei 225, it’s clear that technology and semiconductors make up the majority. Companies like Tokyo Electron and Advantest, which benefit directly from AI chip expansion, have the highest weights, while giants like SoftBank, Sony, and Toyota are also firmly in the front row. These companies share a common trait — a high proportion of overseas revenue, making the yen’s depreciation even more advantageous.

Regarding investment methods, Taiwanese investors mainly have a few options. Japan index ETFs like EWJ and DXJ have low fees and decent liquidity, suitable for long-term participation but not wanting to research individual stocks. Futures have a high entry barrier, requiring a margin of over 700,000 yen per contract, which isn’t very friendly for small investors. A more practical option is CFD contracts, which offer flexible leverage, low trading costs, and can be started with just over a hundred US dollars, making them more accessible for beginners or investors with limited capital.

But here’s a reminder: the biggest risk for the Nikkei 225 is actually the yen exchange rate. Many people make money from the index but lose on the currency, and such cases are quite common. Additionally, factors like the Bank of Japan raising interest rates, slowing AI capital expenditure, and limited domestic demand in Japan are risks to watch out for. Especially now, the rally of the Nikkei 225 is highly concentrated in semiconductor equipment stocks. If tech giants start to cut back on AI investments, these heavyweight stocks could face adjustments.

In the long term, if you are optimistic about Japanese corporate reforms, AI supply chain opportunities, and the structural trend of a weak yen, the Nikkei 225 is indeed worth including in your asset allocation. However, choosing the right tools is crucial — Japanese index ETFs are relatively limited in size and liquidity, requiring precise entry points; on the other hand, tools like CFDs can be more flexible, allowing direct deposit in New Taiwan Dollars, making long or short positions just a click away. Just remember: whether you choose any method, the yen’s trend and global AI demand are the key variables that will determine the future of the Nikkei 225.