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) - Get Report

,

Honda

(HMC) - Get Report

,

Canon

(CAJ) - Get Report

and

Sony

(SNE) - Get Report

. 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

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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) - Get Report

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)

and

Panasonic

( PC).

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)

represents smaller companies with an average market capitalization of less than $500 million. JSC has gained approximately 13% year-to-date.

The

iShares MSCI Japan Small Cap ETF

(SCJ) - Get Report

also tracks small-cap Japanese firms, but has a lower average daily trading volume than JSC. While JSC's trading volume is just over 25,000, SCJ's is less than 12,000. Since JSC and SCJ have lower liquidity, investors should be cautious when placing large orders.

The election results have already been positive for the Japanese yen, which hit a seven-week high against the dollar on Monday. The yen has continued to move upward, climbing all day yesterday and continuing a climb started in early August.

A number of ETFs are designed for currency-savvy investors. The

CurrencyShares Japanese Yen Trust

(FXY) - Get Report

and

WisdomTree Dreyfus Japanese Yen Fund

(JYF)

both are designed to track the performance of the currency. FXY has an average daily trading volume of more than 250,000 shares, while JYF averages a paltry 1,000 shares. Investors concerned about liquidity should certainly stick to FXY.

Japanese reform is still in the early stages, so potential investors should be prepared to buy and hold. ETFs like SCJ and EWJ provide investors exposure to the world's second largest economy while mitigating security specific risk. Whether you favor large-cap or small-cap investments, these ETFs are a safer way to invest internationally than stock-picking.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion was long SCJ.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.