By Rocky Swift
       TOKYO, Feb 22 (Reuters) - Japan's benchmark Nikkei stock
index is nearing its all-time high of 38,957.44 set on
Dec. 29, 1989 in the heady days of the country's bubble economy.
But like Japan itself, the Nikkei is very different from 34
years ago - especially in terms of the companies that comprise
it and what they are worth.
    The Nikkei Stock Average is a price-weighted index of 225
large, widely traded Japanese companies and the most popular
benchmark for Japan's stock market. 
    It was started in 1950, shortly after Japan's stock market
reopened after World War Two. Its name is a contraction of
"Nihon Keizai," which means "Japan Economy" and comes from the
name of the newspaper company which compiles it, Nikkei Inc. 
    The Nikkei is reset twice a year when companies may be added
or subtracted based on their size and liquidity, so the index's
composition has changed a lot over the past three decades. 
    In 1989, banks and utilities were among the biggest
companies on the Japanese stock market and were more heavily
weighted on the Nikkei (see Table 1). Now, about 50% of the
Nikkei's weighting is in technology companies while the
second-biggest segment is consumer goods, at 23%.
    Table 1: Tokyo Shares in 1989
 Rank     Market value  Previous name    Present name             (RIC)      Present rank
          (trln yen)                                                         
 1        15.00         Industrial Bank  Mizuho Financial Group              27
                        of Japan                                             
 2        10.55         Sumitomo Bank    Sumitomo Mitsui                     13
                                         Financial Group                     
 3        9.99          Fuji Bank        Mizuho Financial Group              27
 4        9.12          Dai-Ichi Kangyo  Mizuho Financial Group              27
 5        9.16          Mitsubishi Bank  Mitsubishi UFJ                      2
                                         Financial Group                     
 6        8.13          Tokyo Electric   Tokyo Electric Power                142
                        Power            Holdings                            
 7        8.09          Sanwa Bank       Mitsubishi UFJ           8306.T     2
                                         Financial Group                     
 8        7.94          Nippon           same                     9432.T     6
                        Telegraph and                                        
                        Telephone (NTT)                                      
 9        7.71          Toyota Motor     same                     7203.T     1
 10       6.74          Nomura           Nomura Holdings          8604.T     77
    Table 2: The Nikkei Today
 Rank          Market value  Name                  (RIC)
               (trln yen)                          
 1             55.47         Toyota Motor                  
 2             25.54         Mitsubishi Corp               
 3             18.30         Mitsubishi UFJ                
                             Financial Group       
 4             16.70         Keyence                       
 5             16.40         Sony Group                    
 6             16.36         NTT                           
 7             16.13         Tokyo Electron                
 8             13.29         Fast Retailing                
 9             12.34         Softbank Group                
 10            12.11         Shin-Etsu Chemical            

    While the numerical peaks are similar, today's Nikkei is
much cheaper than the one in 1989. At the height of Japan's
bubble, the nation's stocks accounted for more than 40% of
global equity values, but now make up less than 6%, displaced by
the growth of China and other developing markets.
    The price-to-earnings ratio, a popular valuation measure,
for Nikkei companies rose to about 60 during the previous peak,
whereas now it is about 16.
    Looking at price-to-book ratios, another common valuation
metric, major Tokyo-listed firms sold for more than 6 times
their break-up value in late 1989. The average PBR for Nikkei
companies now stands at 1.47, and many Japanese firms are priced
at below 1, an oddity in global markets.
    The Nikkei Volatility index, a so-called "fear
gauge" among traders, stood at 20.65 on Feb. 21, not much
different from 20.3 on Dec 29, 1989. 
    But the difference in Japan's economic prospects in the
intervening 34 years could not be more different.
    Japan was then seen as potentially eclipsing the U.S. as the
world's dominant economy, and the country was flush with cash.
Now, Japan still carries the scars of decades of deflation and
is grappling with a shrinking economy, a dwindling labour force
and a sense of diminishing influence on the world stage.
    Even so, the decades of doldrums have made Japan a relative
bargain, inviting the interest of foreign investors, such as
billionaire Warren Buffett. And the Tokyo Stock Exchange has
recently increased pressure on companies trading below their
book value, leading to waves of share buybacks and management
buyouts that have helped sustain investor enthusiasm. 

 (Reporting by Rocky Swift, Mariko Katsumura, Kantaro Komiya;
Editing by David Dolan and Himani Sarkar)