ISHARES MSCI JAPAN INDEX FUND $10.48 (American Exchange symbol EWJ; buy or sell through a broker; us.ishares.com) is an exchange-traded fund that tries to match the return of the Morgan Stanley Capital International (MSCI) Japan index.

The fund’s top holdings include: Toyota Motor, 4.4%; Honda Motor Co., 2.7%; Mitsubishi UFJ Financial Group, 2.7%; Canon, 2.4%; Sumitomo Mitsui Financial, 1.8%; Takeda Pharmaceutical Co., 1.6%; Tokyo Electric Power Co., 1.5%; Sony Corporation, 1.5%; Mitsubishi Corporation, 1.4%; and Mizuho Financial Group, 1.4%.

The fund’s industry breakdown is as follows: Industrials, 20.0%; Consumer Discretionary, 19.1%; Financials, 16.7%; Information Technology, 13.3%; Materials, 7.6%; Utilities, 5.9%; Health Care, 5.6%. Consumer Staples, 5.3%; Telecommunication Services, 4.1%; and Energy, 1.5%.

iShares MSCI Japan Index Fund was launched on March 12, 1996. Its expense ratio is 0.56%.

Japan’s gross national product (GNP) grew at a strong 3.9% annualized rate in the third quarter of 2010. However, that’s mainly because Japanese consumers rushed to take advantage of expiring government incentives on cars. Consumers also stocked up on cigarettes ahead of a tax hike.

Growth could slow over the next few quarters, mainly because high U.S. unemployment and a slow recovery in U.S. housing markets continue to hurt demand for Japanese exports, such as cars and consumer electronics. As well, the yen is hitting 15-year highs against the U.S. dollar. That’s a further drain on Japanese sales to the U.S.

Moreover, the ongoing threat of deflation may also prompt Japanese consumers to hold off on purchases in the hope that prices will fall further.

Still, the International Monetary Fund (IMF) forecasts growth of 1.8% in 2011. That’s lower than 2010, but still positive for the shares of high-quality Japanese companies.

iShares MSCI Japan Index Fund is a buy.