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A raid on the offices of a midsized Japanese Internet company last week sent the Nikkei reeling and helped exacerbate a U.S. tech selloff. But while regulators were bashing down the door of highflying


, Japan exchange-traded fund investors might have been wondering what all the ruckus was about.

Livedoor shares plummeted when government prosecutors came knocking last Monday, charging the Internet service company with violating securities laws by spreading false information. But even though the company's chief executive, Takafumi Horie -- a 33-year-old celebrity in Japan because of his freewheeling, clearly non-Japanese management style -- denied wrongdoing, the incursion into Livedoor sent Japanese stocks into a two-day tailspin of 6%.

The selling even got so hairy that the Tokyo Stock Exchange was forced to close trading 20 minutes early Wednesday, the first time Asia's biggest bourse has shut down trading for capacity reasons.

Japanese stocks bounced back with verve Thursday as investors scooped up beaten-down technology and Internet-related stocks, only to slide back down again on Friday in conjunction with the massive U.S. selloff. All told, shareholders of the popular

iShares MSCI-Japan

(EWJ) - Get iShares MSCI Japan ETF Report

may need a bit of comforting after last week's roller-coaster ride.

The EWJ is the fifth-largest ETF in terms of total assets, which total $13 billion. The EWJ ranks fourth in volume, with 24 million shares traded every day. The expense ratio is 59 basis points.

One thought that may buck up queasy EWJ investors is that established Japanese manufacturing and financial companies, not new-age tech firms, still dominate the nation's economy -- as well as the EWJ portfolio. Technology hardware and equipment stocks make up less than 9% of the EWJ, compared with 12% for banks and 11% for both automobiles and capital goods. (By comparison, tech makes up 18% of the

S&P 500 Index


The largest holding of the fund is

Toyota Motor

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at just under 6%, followed by

Mistubishi Financial


at 4%.

In total, a healthy 24% of the EWJ's assets can be found in its top 10 holdings, including well-known manufacturers

Honda Motor

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The biggest Internet position in the fund is

Softbank Holdings

, at a mere 1.2%.

"The key players in Japan are still manufacturing- and export-related," says Ron Holt, portfolio manager of the $246 million Harris Insight International fund, which has 20% of its holdings in Japanese stocks. "Japan is a big, deep market which should not be brought down by such a minor company."

Aside from the nature of its holdings, the EWJ's performance should also soothe investors troubled by Japan's recent stumble. The EWJ's growth has mirrored Japan's economic recovery over the past few years. The EWJ was up more than 24% in 2005 after rising 35% and 15%, respectively, in 2003 and 2004. And many international fund managers expect the land of the rising sun to keep glowing.

"We feel Japan will continue to do well because the domestic economy is improving," says Holt. "Deflation has stopped, and we expect prices will soon rise after years of going down."

Andrew Clark, international analyst at the fund tracker Lipper, says that Japan's economy will also benefit from the privatization of the postal service in 2006, as more capital "leaks into the stock market." Clark adds that Japanese exporters will continue to be strong if the yen remains weak compared with the dollar.

One word of caution for Japan investors, though, before they get too comfortable: Internet-related shares may still be minor players in the EWJ, but there are analysts who believe it was justifiable that an up-and-coming Net stock like Livedoor was the catalyst that shook the Nikkei's foundations.

Jim Russell, portfolio for the $835 million Merrill Lynch Pacific Fund, for example, says Japan's economy is no longer solely based on manufacturing and exporting. And just as the U.S. has evolved toward a high-tech and service-based economy, Japan is also moving up the "value chain".

"Low-level manufacturing has matured and moved to other countries like China," says Russell. "That makes tech and Internet stocks symbolically important, because they have been the growth engine for Japan during their recovery."