Tokyo's benchmark Nikkei 225 index on Thursday closed at its highest level since the quake-tsunami disaster in March last year, a day after Japan's new conservative government took power.
The Nikkei added 0.91 percent, or 92.62 points, to 10,322.98 by the close, finishing above 10,254.43, its level on March 11, 2011 when a massive temblor hit Japan, sparking a tsunami and subsequent nuclear crisis.
The broader Topix index of all first-section shares was up 0.75 percent, or 6.38 points, at 854.09.
"It's all a yen-driven story, with foreign long interest remaining nominally strong," Tachibana Securities market analyst Kenichi Hirano told Dow Jones Newswires.
"The Nikkei hitting a fresh 2012 high set off alarm bells, meaning certain global funds can't afford to not buy the market.
"All other things being equal, as long as the yen keeps weakening, stocks should continue to benefit from brighter earnings expectations, short-covering, and increasing overseas investor interest," he added.
The dollar rose to its highest level in more than two years against the yen in forex trade as Shinzo Abe was sworn in as prime minister.
Abe -- whose Liberal Democratic Party won a landslide election victory this month -- has repeatedly said he would pressure the Bank of Japan for more easing measures, comments that have helped bring down the value of the yen.
A weaker yen helps Japanese exporters by making their products more competitive overseas.
"Some say the market is now overbought, but the trend is your friend, and few are willing to risk going short at the moment," said an equity trading director at a foreign brokerage.
"Japan is now right in the middle of the radar for foreign portfolio managers."
Toyota shares jumped 2.61 percent to 3,930 yen after the automaker said it had agreed to pay about $1.1 billion to settle a class action lawsuit launched by US vehicle owners affected by a series of mass recalls.
Honda was up 1.63 percent at 3,110 yen, Fujitsu gained 1.11 percent at 363 yen, investment banking giant Nomura Holdings rose 4.24 percent to 491 yen while Mizuho Financial Group was up 1.31 percent at 154 yen.
US stocks fell Wednesday on uncertainty about whether a deal to avert the fiscal cliff of tax hikes and spending cuts would be reached by the year-end deadline. The Dow Jones Industrial Average slipped 0.19 percent to 13,114.59.
On currency markets Thursday, the dollar bought 85.75 yen Thursday afternoon in Tokyo, touching its highest levels since September 2010.
The euro fetched 113.57 yen and $1.3242 compared with 113.19 yen and $1.3230.