Saying U.S. stocks have been the only developed markets game in town this year is, well, wrong. In local currency terms, Japanesee stocks have been the best developed market equities and the race has not even been close.

Regarding ETFs, the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) has outpaced the S&P 500 (^GSPC) by 500 basis points. DXJ has also beaten the iShares MSCI EAFE ETF (NYSEArca: EFA) by two-to-one.

Another big move could be on the horizon for DXJ and rivals such as the db X-trackers MSCI Japan Hedged Equity Fund (NYSEArca: DBJP) and the iShares MSCI Japan ETF (NYSEArca: EWJ).

Since the Nikkei’s tumble and yen’s rally in May, “both the Nikkei 225 and the USD/JPY cross have been consolidating for over six months in a symmetrical triangle with well-defined converging trendlines,” writes Eagle Bay Capital President J.C. Parets.

Over the past three months, DXJ, the to asset-gathering ETF this year with inflows of nearly $8.5 billion, has gained 6.4%. That’s barely better than EFA and well behind the S&P 500. However, the longer Japanese stocks and USD/JPY consolidate, the more market participants seem to be anticipating a breakout to the upside. [More to Come for Hedged Yen ETFs]

That may not be the case. Parets notes a longer-term chart of the Nikkei 225 shows Japan’s benchmark index met resistance at downward sloping trendline earlier this year.

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