Up, down, up -- that's been Japan's Nikkei (NIKKEIINDICES: ^NI225) index this year; but despite the volatility, it's been a big payoff for investors. Although the Nikkei only edged up slightly over the past week, the index is up more than 35% year to date -- and the Bank of Japan, fresh off starting up unprecedented Japanese stimulus earlier in the year, is hopeful about the economy's gains in the near future. Will that pay off for stocks? It certainly has so far. Let's dive into what investors need to know about the world's hottest market.

Optimism stays on track
The Bank of Japan kept on track this week with its projected $700-billion annual expansion of the country's monetary base, citing that the Japanese economy has begun to "recover modestly." Central bank Governor Haruhiko Kuroda, only recently placed in the position by prime minister Shinzo Abe, stated his confidence that Abe's 2% inflationary target could be achieved in a previously expected two-year window. The economy's rebound has built up public sentiment in the move, as the Pew Research Center polled recently that Japanese opinion of a good economy has gained 20 percentage points between 2012 and 2013, with even more citizens believing that the Japanese economy will continue to gain steam in the coming year.

If nothing else, that opinion reinforces investor optimism that stimulus is here to stay. While U.S. easing may be winding down, Abe's surprising lifting of Japan out of the stagnant doldrums that the country's been stuck in for more than two decades has given the prime minister plenty of momentum to work with. As long as he's in favor, expect the prime minister to continue his loose monetary policy through 2014, at the least.

That's good news for Japan investors. The iShares MSCI Japan Index Fund ETF (NYSEMKT:EWJ) hasn't lived up to the Nikkei's 35% run-up this year, but the ETF's nearly 19% gain year to date compares favorably even to the S&P 500's 14.5% stimulus-fueled gain in 2013. The end of U.S. easing has sent waves through the S&P and other U.S. markets, and could impact Japanese stocks later in the year -- particularly if the Nikkei continues its eye-popping surge, which will spark wary investors  to pull back eventually like they did in May and June. The weak yen and stimulus, however, will keep the Japanese financial sector on track, and markets humming.

The gains made in Japan's markets have helped Japanese banks -- and their stocks -- pick up gains this year, but more and more of the sector's big names are looking overseas for a lift. Mitsubishi UFJ (NYSE: MTU), whose stock has jumped nearly 19% this year, agreed earlier in the week to buy a 75% stake in Thailand's fifth-largest bank, the Bank of Ayudhya, in a $5.6 billion deal. Mitsubishi made the move to take advantage of Thailand's growing economy, as the nation's GDP surged 6.4% last year -- a statistic that helped the Bank of Ayudhya's bottom line climb by 58% in 2012. If Thailand keeps surging, it'll be money well spent for one of Japan's largest banks.

Mizuho Financial (NYSE:MFG), another big gainer in the sector this year, with shares up 14.2%, is following the same pattern, and investing newfound cash into emerging markets overseas, particularly in Asia and the Americas. That may not be the move that Shinzo Abe wanted when he first envisioned his stimulus plan, but easing is making it easy for Japan's biggest financial institutions to play potentially lucrative markets in what could be a windfall for investors if this keeps up.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.