On the other side of the globe, there's a growth story unfolding amid relatively little fanfare. The Japanese stock market, after bottoming in 2003, is climbing one step after another on its way up the Y-axis. And it's probably got quite a few more steps left to climb. That's why -- in this first-ever CAPS ETF contest -- I'm picking the iShares MSCI Japan Index Fund (AMEX:EWJ), a top-flight ETF offering broad exposure to the Japanese stock market.

OK, before I get too far, let me just put everything on the table. One of the reasons I'm looking overseas is that I'm a little . well, nervous about the U.S. economy. I think we could be facing some stiff headwinds over the next couple of years, especially as the formerly red-hot housing market sorts itself out. Numerous prognosticators have already called a bottom in housing and said the worst is behind us. But I don't buy it. Housing trends tend to take several cycles to play out. In all likelihood, we're in the early stages of a multiyear correction, and such an outcome could make U.S. consumers a good deal less likely to open their wallets.

An investment in Japan could provide a nice counterweight to U.S.-based holdings. As most readers will know, the Japanese stock and housing markets experienced untenable booms of their own. But those peaks were more than a decade ago. In the ensuing years -- until recently, that is -- Japan has been in a downright funk, battling everything from stagnant wages to deflation. The Bank of Japan even kept its lending rates at near zero for years in an effort to combat a deflationary spiral. Such bold measures seem to have finally paid off. Some 17 years after the Nikkei 225 hit its legendary heights in the late 1980s, Japanese businesses and consumers appear ready once again to assume a leadership position in the global economy.

So, without further ado, let's take a closer look at the iShares MSCI Japan Index Fund. The MSCI Japan Index -- on which the fund is based -- is capitalization-weighted and seeks to track 85% of the capitalization of the entire Japanese stock market. That makes this ETF a good proxy for Japanese stocks generally. The fund holds a representative sampling of roughly 350 stocks in the index and offers broad exposure to all major sectors. Holdings Toyota Motor (NYSE:TM) and Mitsubishi Financial (NYSE:MTU) are at the top of the heap, representing about 6% and 4% of net assets, respectively. And gamers will be pleased to find both Nintendo and Sony (NYSE:SNE) slugging it out for supremacy on the fund's roster of holdings. (Sony wins by a good margin and finishes in the Top 10. Sorry, Mario.)

There's a lot to like about the iShares MSCI Japan Index Fund. Having made its debut more than 10 years ago, it is one of the pioneers among international ETFs and has attracted more than $13 billion in net assets. Its expenses are low at 0.59%, less than half of what the average actively managed international fund costs. This means that more of your money stays invested in the market to enhance your returns. The fund doesn't hedge against currency fluctuations, so if the dollar weakens against the yen (a very real possibility), investors would get the additional benefit of a performance boost related to more favorable currency terms. Of course, the opposite is also true: a stronger dollar versus the yen could hinder performance.

Comparing the fund's returns over the past three and 10 years illustrates just how much more sanguine the Japanese stock market has become. As of Oct. 31, the fund posted a 10-year average annualized return of about half of 1%. So if you invested $10,000 in late 1996, your investment would have grown by a measly $500. Focus in on the past three years, however, and you'll see a dramatically different picture. The average annualized return over this shorter period rises to almost 15%. No question about it: Japanese stocks are on a roll.

Will they continue to rise? That's anybody's guess, but the case for a sustainable -- if not volatile -- resurgence in the Japanese stock market is compelling. The iShares MSCI Japan Index Fund provides an effective way to benefit if the bullish case continues to play out: It's a low-cost, road-tested vehicle for getting wide exposure to Japanese stocks.

Whether or not this particular ETF is for you, having broad-based international exposure in your portfolio can make a lot of sense. International diversification lets you reap the rewards of geographic regions or countries that are flourishing, yet you don't get hit too hard by those that are not. As I discussed a couple of weeks ago, adding an international component to your portfolio through ETFs can be a relatively simple process.

So let us know whether you agree with my view on EWJ by rating it an "outperform" in our brand new Motley Fool CAPS community intelligence database. And if you disagree, go ahead and rate it "underperform." Our goal is to harness the power of individual investors to help determine the best ETF for 2007. You can help by joining CAPS and offering your thoughts. Just click here to get started.

Go here for the complete list of ETF contenders in our CAPS tournament. And for more information on exchange-traded funds, visit the Fool's ETF Center.

While Fool contributor Kevin Scollan does not own any of the shares mentioned in this article, he's mightily tempted to open a long position in EWJ. He also hopes to visit the Land of the Rising Sun someday. The Motley Fool has a disclosure policy.