Japan’s stock market is down about 20 percent from the highs hit in May, affording a good buying opportunity for those who missed the rally earlier this year.

The Land of the Rising Sun remains on course to reverse decades-long deflation and a slumping equity market. Despite being up some 60 percent since last October, the Japanese market is at half the level it was back in 1989.

Since taking office last September, Prime Minister Shinzo Abe has pushed through an aggressive stimulus program, to the tune of JPY10.3 trillion ($117 billion) in new government spending. On the monetary front, Abe has made it clear he wants the Bank of Japan, which he has padded with like-minded people, to accept a 2 percent inflation target and to launch a government-bond-buying program, similar to that of the US.

So far, Abe’s campaign has worked. The yen has plummeted about 25 percent in the past eight months – from about JPY80/USD1 to its current level of just under JPY100/USD1. This is an exchange sweet spot for Japan’s major exporters, whose products are now cheaper for foreign buyers and whose domestic sales will pick up along with the economy. Concerns that the yen’s depreciation will spark a currency war, especially with China, we think are overblown.

Quite suddenly, Japan has become one of the fastest-growing developed economies, in what is a major role reversal. Japan’s economy grew 3.5 percent the first quarter of 2013, triple the 1 percent rate at the end of 2012, and significantly more than what analysts expected.

Finally, there’s a large amount of money on the sidelines in Japan, where stocks recently accounted for only 6 percent of household assets vs. 33 percent in the US, 14 percent in Europe—and 23 percent in Japan back in 1988.

Exporters and More

iShares MSCI Japan Index ETF (NYSE: EWJ) is a good play on Japan’s long-awaited recovery, since it’s skewed toward export-oriented industrial companies (18 percent of assets) and consumer spending (20 percent of assets).

EWJ tracks the MSCI Japan Index, whose 300 stocks include companies such as FANUC (Tokyo: 6954), a maker of industrial automation machinery, and Komatsu (Tokyo: 6301), a manufacture of construction machinery and vehicles.

Automakers such as Toyota Motor (NYSE: TM) also figure prominently, and they are all benefiting from the weakened yen. For every 1 yen that the Japanese currency drops against the dollar, Toyota estimates its profits increase by $340 million.

Consumer-oriented names include Dentsu (Tokyo: 4324), which provides advertising services, and SHIMANO (Tokyo: 7309), a maker of bicycle components and fishing equipment.

Japanese household spending recently hit a nine-year high, as Japan’s improving economy and roaring stock market have loosened consumers’ grip on their wallets. While the rate of spending growth is likely to moderate, 5 percent growth is probably sustainable going forward, especially if Japanese incomes get a lift along with the economy.

With Japan’s huge stimulus program already making progress in righting the Japanese economy, the country is likely to be one of the world’s top-performing developed markets for some time to come.

Note, however, that EWJ is volatile, with drops of 5 to 7 percent in one day. So it’s for a small amount of money you can afford to put at risk.