Last night, Japan's Nikkei 225 index closed above 10,000 for the first time since the island nation was hit by its biggest earthquake in 140 years on March 11. Japanese stocks are now up 20% from their lows from six weeks ago. There have been record flows in Japan ETFs and funds -- including nearly $1 billion the week following the tsunami -- with many investors choosing to view the disaster as Warren Buffett did: as a buying opportunity.

Source: Bloomberg, Rosewood Trading

Even so, the Nikkei 225 still trades at a relatively cheap price/book ratio of 1.2, compared to 2.2 for the S&P 500. Japanese stock indices also tend to be dominated by industrial and consumer-oriented firms, both which have outperformed globally as of late.

When adding an equity position, my preference is to buy a basket of the underlying stocks themselves rather than a fund or ETF, which not only saves on management fees but also permits more portfolio flexibility by allowing you to focus on the best performing names. For example, many of the "sogo shosha," the large-multinational trading companies like Mitsui (MITSY), Itochu (ITOCY), Sumitomo (SSUMY) and Mitsubishi (MSBHY) have rebounded to near pre-quake levels, while others like Sony (SNE), recently beset with online security concerns, have lagged.

However, most investors, especially those buying the asset for the first time, are likely to opt for one of the seven exchange-traded funds that invest in Japanese stocks (excluding leveraged funds). If that seems like a large number, keep in mind there are over 22 listed ETFs that invest solely in precious metals.

At $7.4 billion, the biggest by far is iShares MSCI Japan Index (EWJ), one of the original "World Equity Benchmark Shares" (WEBS), the precursor to the iShares brand, launched back in 1996. An even more focused large-cap option is iShares S&P/TOPIX 150 Index (ITF), which owns half as many stocks and offers a slightly better yield (1.58% vs. EWJ's 1.36%) and lower expenses (0.50% vs. EWJ's 0.54%). Both own names like Honda, Mitsubishi UFJ (MTU) and Canon (CAJ) .

Small Is Beautiful:

SPDR Russell/Nomura Small Cap Japan (JSC), iShares MSCI Japan Small Cap Index (SCJ) and WisdomTree Japan SmallCap Dividend (DFJ) vs. iShares TOPIX 150 Index (ITF) since March 15, 2011

Small-cap Japanese stocks have been even stronger performers than their large-cap peers, with some Japan ETFs that invest in small-cap firms outpacing large-cap ETFs by as much as 6 percentage points.

Unlike large-caps like Toyota (TM) and Hitachi (HIT), Japanese small-caps like Kaken Pharmaceuticals, Dainippon Screen and Nachi-Fujikoshi aren't listed on U.S. exchanges, which makes SPDR Russell/Nomura Small Cap Japan (JSC), iShares MSCI Japan Small Cap Index (SCJ) and WisdomTree Japan SmallCap Dividend (DFJ) the top options for domestic investors looking to take a bite.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC. At the time of writing, Hoenig's fund held positions in many of the securities mentioned.