ETF Picks for a New Japan

NEW YORK (TheStreet.com) -- Japan's election is the end of an era for the previously entrenched Liberal Democratic Party and a new era for Japan investors. As the Democratic Party of Japan begins to enact a series of reforms, the new efforts could jolt an economy that has been in a slump for almost two decades.

Japan boasts the second largest economy on the planet, and is home to well-known blue chips like Toyota(TM Quote), Honda(HMC Quote), Canon(CAJ Quote) and Sony(SNE Quote). This export-driven economy has been stuck for the last 20 years with Japan's Nikkei moving lower, reaching levels seen in the 1980s during the past year.

Land of the Rising ETF

The election underscores a shift of public sentiment and a new generation of Japanese voters taking to the polls. In a situation not unlike that of the U.S., citizens of Japan have tired of high unemployment and a dragging economy. Recent data pegs unemployment at 5.7%, which is the highest recoded since the government started counting in 1953.

The DJP built its platform around better relations with the U.S. and economic stimulus. The new administration aims to reduce the power of bureaucrats, who have dominated the political scene.

Investors looking for broad exposure to Japanese equities should consider the iShares MSCI Japan Index(EWJ Quote) ETF, a cap-weighted fund that tracks the country's largest firms. In addition to Toyota, Honda, Canon and Sony, top EWJ holdings also include: Mitsubishi UFJ Financial Group(MTU Quote) and Panasonic(PC Quote).

If the DJP succeeds is trimming the power of bloated bureaucrats, the new shift in power should also offer opportunities for small firms, whose interests may have been hampered by bureaucrat-represented blue-chips. The SPDR Russell/Nomura Small Cap Japan(JSC Quote) represents smaller companies with an average market capitalization of less than $500 million. JSC has gained approximately 13% year-to-date.