The 225-issue Nikkei Stock Average closed 373.65 points, or 1.25 percent, higher from Thursday at 30,381.84, its highest close since Feb. 16.
The broader Topix index of all First Section issues on the Tokyo Stock Exchange increased 26.72 points, or 1.29 percent, to 2,091.65, a 31-year high.
Trading volume on the main section grew to 1,486.00 million shares from Thursday's 1,260.35 million shares.
After Japanese Prime Minister Yoshihide Suga said last week he intent not to seek re-election, many lawmakers gradually announced their bids in the leadership race of the ruling Liberal Democratic Party (LDP) to succeed Suga. Participants of the Tokyo market are increasingly focused on what economic measures could be launched by contenders.
Taro Kono, the minister in charge of Japan's vaccination efforts, announced his candidacy in the Sept. 29 race after the stocks market closed, joining the race with former Foreign Minister Fumio Kishida and former Communications Minister Sanae Takaichi.
Investors are expecting that whoever becomes the leader of the LDP would formulate a drastic economic stimulus plan before the general election this fall. The LDP leader serves as prime minister since the party controls the House of Representatives.
Norihiro Fujito, the chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co., said, "Overseas investors are re-evaluating Japanese stocks as their hopes grow that the political upheaval will change Japan's policies significantly and turn around the economic fallout" from the coronavirus pandemic.
By the close of play, securities house, retail, consumer credit, and chemical issues headed the upward trend. Advancing issues outnumbered declining ones 1,923 to 222 on the First Section, while 44 finished unchanged.
Retail and service issues gained the day because consumer spending is expected to grow if the next government compiles an economic stimulus package. Among them, Retailer Aeon rose 2.0 percent, and staffing service provider Recruit Holdings ended 3.3 percent higher.
SBI Holdings, the online financial conglomerate with a goal to be the fourth largest bank in Japan, jumped 7.6 percent after announcing a tender offer for Shinsei Bank on Thursday. With a 2,000 yen (18 U.S. dollars) per share offer price, the financial group planned to increase its stake in Shinsei Bank to 48 percent from the current about 20 percent.
The offer price was around 40 percent higher than Shinsei's closing price on Thursday. Therefore, Shinsei Bank surged 20.8 percent on Friday to a daily limit high.