Japan’s economy and exchange traded funds (ETFs) may have been dormant as of late, but analysts say the sun is no where near setting for the economy in the next year.

In fact, some analysts say that investors should gear up for some big returns into 2009, as interest rates have eased and the country has dodged the effects of the U.S. subprime mortgage mess, reports Joanne Von Alroth for Investor’s Business Daily.

While Honda and Toyota’s hybrid cars are among the most popular, you’d think sales would be taking off with the high gas prices. However, it hasn’t been enough to help out the car makers. Reported hybrid sales in the U.S. fell 6% year-on-year last month to 26,877 units, only 2.4% of the new vehicle market, says Automotive World.

Toyota (TM) has already laid off 800 people at a plant in southwestern Japan, a move linked directly to slow U.S. sales. Before the layoffs, Toyota employed 8,200 workers, 1,950 of them temporary, so they are flexible according to market demand, reports Yuri Kageyama for Associated Press.

ETFs that will benefit from more alternative drivers, and growth next year:

• iShares MSCI Japan Index (EWJ): down 13.4% year-to-date; Toyota is 5%; Honda is 1.9%
• iShares MSCI Japan Small Cap Index Fund (SCJ): down 13.9% year-to-date
• NETS TOPIX Index Fund (TYI): down 9.8% since April 16 inception; Toyota is 3.9%; Honda is 1.6%

Tags: Asia, EWJ, Japan, SCJ, TYI