Bank of Japan, courtesy Wikimedia Commons.

U.S. stocks aren't the only ones to start the fourth quarter on a positive note, as stock markets in Japan have also posted several days of gains. On Tuesday, Japanese stocks continued their recent winning ways, with the Nikkei 225 (NIKKEIINDICES: ^NI225) rising another 180 points, or 1%, to finish at 18,186. A familiar theme is buoying the market in the island nation: the hope that further stimulus from the Bank of Japan will help add to government efforts to reinvigorate the economy.

Will the BoJ ease further?
U.S. investors need to remember that Japan hasn't made as much progress in its post-recession recovery as the U.S. has, and so its stimulus situation resembles what the Federal Reserve was doing last year. After having initially set up a quantitative-easing asset-purchase program in April 2013 that was expected to last for a couple of years, the Bank of Japan has had to extend the program. Now, many believe that the BoJ should actually expand its asset purchases, with some expecting the addition of 1 trillion to 2 trillion yen -- or about $8 billion to $16 billion at current exchange rates -- to the central bank's monthly purchase rate of roughly $55 billion as soon as the end of this month.

Yet Japan faces a potential long-term backlash from its bond-buying activity. As the size of the BoJ's balance sheet expands, some fear that investors will lose confidence in its ability to control the economy once it starts to climb past key levels. At its current pace, the central bank's assets would be greater than the nation's GDP in just a couple of years, and beyond that, structural problems involved in the central bank owning too much of certain key issues of government debt could affect credit markets more broadly.

Who wins from uncertainty?
For now, the market seems to think that further stimulus would still be effective. Hard-hit commodity stocks posted some solid gains in Japan on Tuesday, with Nippon Steel leading the index higher with a 4% gain. Construction machinery companies did well along with other heavy industrial stocks. Export-oriented companies were mixed, with Mazda and Honda Motor (NYSE: HMC) climbing about 3% and 1% respectively on hopes that the weak yen would continue to power foreign-currency-led sales higher, but Toyota Motor (NYSE: TM) dropped slightly.

Yet the broader question involves not just the Bank of Japan but also its trading partners. Foreign currency traders have expected a rate increase from the Federal Reserve by now, and the expectation of higher U.S. interest rates has helped drive the dollar higher against the yen. If that perception changes, then the relative value of the dollar will face new scrutiny, and a stronger yen could threaten Japan's recovery. That explains why keeping further stimulus on the table is a key element of Japan's monetary policy right now.

Investors who suffered in the third quarter will appreciate the gains that Japan has seen so far this week. Nevertheless, in a turbulent economy, many unsettled issues remain, and investors will have to wait to see what impact future policy moves have on Japan in the months to come.