The Nikkei stock average jumped 2.3 per cent to a one-month closing high after Japan intervened to weaken the yen, boosting shares of Toyota and other exporters.
Japan intervened to sell yen for the first time in six years, bringing the currency off 15-year highs against the US dollar.
The action lifted the Nikkei out of negative territory and the index surged as much as 3 per cent at one stage.
"The Japanese economy depends heavily on what it earns from exports overseas, so the intervention came at a good time and had an impact after a string of verbal threats," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.
"Corporate performance hasn't been bad but the dollar hovering near 80 yen had made shares unattractive. The authorities were able to put their foot down in the markets, and the next question is can they follow through with steps to help the economy."
The benchmark Nikkei gained 217.25 points to 9516.56 after earlier dropping as low as 9199.08. The broader Topix rose 1.7 per cent to 848.64.
The US dollar traded at around 85.00 yen after hitting a 15-year low of 82.87 yen on trading platform EBS.
That earlier rise in the yen followed a Japan ruling party vote victory on Tuesday by Prime Minister Naoto Kan over rival Ichiro Ozawa, who had been more strident in his calls to intervene to weaken the yen.
The intervention in the foreign exchange market sent short-term speculators scurrying to cover short positions in stock futures, market players said.
"The key points for the stock market going forward are if the Nikkei can remain on an uptrend once the short-covering in futures peters out," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
"That in turn may depend on whether the yen remains on a weaker footing. The point here is that the yen hasn't strengthened on domestic factors alone - the easing stance by the United States and low US yields have played a key part as well."
Exporters were the top performers on the Tokyo bourse, with Sony Corp jumping 4.1 per cent to 2596 yen after being down as much as 2.4 per cent in early trade.
Automakers rose across the board with Toyota surging 3.8 per cent to 3,010 yen and Honda advancing 4 per cent to 2944 yen. Nissan gained 3.7 per cent to 702 yen.
Makers of precision instruments, a key export sector, also soared, with digital camera maker Nikon gaining 4.5 per cent to 1473 yen and Olympus rising 3.7 per cent to 2,254 yen. Canon rose 1.9 per cent to 3,835 yen.
The Nikkei was looking bullish on the technical charts, having risen above resistance at 9455, around its 75-day moving average and previously considered a strong resistance point.
It also pierced above 9500, around the bottom of its Ichimoku cloud. Ichimoku charts are popular with Japanese traders.
Trade was active on the Tokyo exchange's first section, with 2.36 billion shares changing hands, its highest volume since late July. Advancing stocks outnumbered declining ones by more than 3 to 1.
Reuters