Tokyo's benchmark Nikkei 225 index on Wednesday soared to its highest close since September 2008, when the global financial crisis was rippling across global equity markets.
The Nikkei jumped 3.77 percent, or 416.83 points, to 11,463.75 on a spike in risk sentiment and as the yen plunged on surprise news that the head of the Bank of Japan would quit early.
The last time the index was higher was when it closed above 11,700 at the end of September, weeks after the collapse of Wall Street giant Lehman Brothers, which sparked a global panic and huge sell-off in stocks.
In the months afterwards the Nikkei suffered more selling before it hit its bottom of 7,054.98 on March 10, 2009.
On Wednesday, Tokyo's broader Topix index of all first-section shares also soared, by 3.10 percent, or 29.12 points, to 968.82.
Bank of Japan (BoJ) Governor Masaaki Shirakawa on Tuesday said he would step down about three weeks before his five-year term is due to end on April 8, after the BoJ and Japan's new government butted heads on policy matters.
The country's new Prime Minister Shinzo Abe has openly said he wants a more like-minded candidate, fuelling expectations a new governor will take over who has similar views on following more aggressive monetary easing.
The BoJ head said he had told the prime minister he will resign on March 19, when the terms for two deputy governors expire, so that his successor and the rest of the bank's new leadership could be sworn in at the same time.
He rejected speculation that government pressure forced his early resignation.
His "explanation is entirely plausible, although Shirakawa could perhaps be forgiven for wanting to leave as soon as possible given the criticism he has received for 'not doing enough' to end deflation", London-based Capital Economics said in a note.
Last month, the bank said it would adopt a two percent inflation goal demanded by the new government in a bid to beat the deflation that has haunted the world's third-largest economy for years.
It also unveiled an unlimited asset-purchase scheme to start next year.
But days later, Shirakawa cast doubt on the inflation target and said pressure on global central banks has "risen globally more than ever".
The head of Germany's Bundesbank Jens Weidmann warned last month over what he described as government meddling in monetary policy, calling them "disturbing abuses".
In Tokyo forex trading, the dollar bought 93.79 yen from 93.61 yen in New York on Tuesday, while the euro fetched 127.21 yen against 127.13 yen, continuing a slide that has seen the yen drop sharply in recent months.
Aside from the weakening yen, risk appetite has also risen, said SMBC Nikko Securities general manager of equities Hiroichi Nishi.
"Global markets continue to normalise, allowing risk-on trading to resume," he told Dow Jones Newswires.
"This is partially reflected in the fall of the yen."
The Tokyo market has soared in recent months since the new government won landslide elections in December promising an aggressive monetary policy to kickstart the limp economy.
Wall Street also supplied a strong cue with the Dow Jones Industrial Average finishing 0.71 percent higher at 13,979.30, near its record high.
On Wednesday, Toyota shares closed 6.05 percent higher at 4,815 yen after the automaker late Tuesday said net profit in the nine months to December quadrupled while it also lifted its full-year earnings outlook.
The weaker yen helped other exporters with Sony up 2.34 percent to 1,481 yen, Nikon rising 1.85 percent to 2,639 yen, Canon jumping 2.86 percent to 3,415 yen and Panasonic up 2.78 percent at 739 yen.