The 225-issue Nikkei Stock Average, ended up 799.47 points, or 1.96 percent, from Monday to close the day at 41,580.17, breaking the previous record high seen last week.
The broader Topix index, meanwhile, finished up 27.94 points, or 0.97 percent, higher at 2,895.55.
Market watchers here attributed the gain to an optimistic sentiment among investors due to growing expectations for positive quarterly earnings reports by U.S. companies starting this week and Japanese firms later this month.
Market sentiment was also supported by the yen's depreciation against the U.S. dollar in the forex market, according to analysts.
On the top-tier Prime Market, gainers were led by issues related to electric appliances, nonferrous metals and precision instruments.
Issues that declined outpaced those that increased by 1,098 to 472, while 74 ended the day unchanged.
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