 "Nikkei scales 53-month high, buoyed by robust US data")
Japanese exporters also got a helping hand from a weaker yen, which lost 1% to 93.685 to the dollar on Friday after the upbeat US data. The Japanese currency was quoted at 93.695 to the dollar on Monday.
The Nikkei advanced 151.30 points to 11,757.68, eclipsing the previous 53-month high of 11,662.52 hit on February 25.
"If you look at the likes of ISM, confidence data, they are very, very strong. From that prospective, it is very likely that people are getting more positive on the markets," a trader said.
"We are constructive bullish. Of course, you would have expected some consolidation at this level ... (but) talking to domestic investors this morning, they are looking at real estates, financials with meaningful recovery."
Major exporters on the rise included Toyota Motor Corp, Sony Corp and Honda Motor Co, up between 0.9 and 4%.
US manufacturing activity expanded last month at its fastest clip in 20 months, while US consumer sentiment also rose in February as Americans turned more optimistic about the job market.
The benchmark Nikkei has rallied more than 35% since mid-November, driven by a weaker yen after Prime Minister Shinzo Abe embarked on bold fiscal expansionary policies and pressured the Bank of Japan to adopt more aggressive monetary easing measures.
Despite the recent rally in Japanese stocks, their return on equity was still low versus US and European peers. The Topix's ROE stood at 7.9%, compared with US S&P 500's 15% and pan-European STOXX Europe 600's 12.3%, according to Thomson Reuters Datastream.
REFLATION PLAYS IN VOGUE
Strong expectations that the central bank will continue to purse aggressive reflationary policy also prompted investors to pile into real estate companies, with the sector as the best performer, gaining 5.3%. Sumitomo Realty & Development jumped 5.4% and Mitsubishi Estate climbed 5.7%.
Haruhiko Kuroda, the governments nominee for next BOJ governor, said on Monday that the size and type of assets the central bank now buys is not enough to achieve its 2% inflation target.
The real estate sector has climbed more than 57% since mid-November, outpacing the Nikkei during the same period.
The broader Topix index gained 1.5% to 998.55.
UBS upgraded Japanese equities to 'neutral' from 'underweight' in its global portfolio model.
"Whilst we are relatively sceptical on the ability of the administration to generate inflation and economic growth, we see a likely period of continued reflationary rhetoric and supportive news flow ahead of the summer elections for the upper house," UBS strategists said in a note.
"The broader improvement in the US economy and pick up in durables goods orders should help Japan, particularly with the weaker yen, over a longer-term horizon."