The benchmark Nikkei share average rose 1.63 per cent to 27,292.37, its highest closing level since Aug. 16, 1990, while also posting its biggest daily gain since mid-June.
The broader Topix gained 1.74 per cent to 1,819.18, its best closing since October 2018.
“Investors who are buying stocks today are making new positions for 2021,” said Takashi Hiroki, chief strategist at Monex Securities.
Overnight, major Wall Street indexes notched record highs as optimism for an economic recovery increased following US President Donald Trump’s signing of a $2.3 trillion pandemic aid bill.
The US House of Representatives voted on Monday to meet Trump’s demand for stimulus payments of $2,000 to qualified Americans, sending the measure on to the Senate for a vote.
Investors also re-recognised other catalysts from this month, such as dovish monetary policies from central banks in Japan, the US and Europe, as well as a string of positive vaccine news, said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management.
“While the speed will not likely be as fast as the one in the November rally, I think there is enough possibility that the market will remain strong for the next one to two months,” he said.
All but two of the 33 sector sub-indexes on the Tokyo exchange traded higher. Highly cyclical airlines and land transport were among the top gainers on the main bourse.
Among the top percentage gainers in Nikkei, Sumitomo Dainippon Pharma Co Ltd jumped 16.24 per cent, followed by IHI Corp and Yokogawa Electric Corp, up 6.17 per cent and 5.11 per cent, respectively.
Elsewhere, Nitori Holdings rose 1.37 per cent as the furniture retailer completed its tender offer for Shimachu Co . Shares of Shimachu lost 0.36 per cent.
The Mothers Index of start-up firm shares rose 2.6 per cent, hitting a one-week high.
