The 64-year-old captain of the ship was still unaccounted for nearly 12 hours after the accident, while four of his crew were in hospital being treated for severe burns, the local coastguard said.
The vessel's boatswain, 61, remained unconscious with burns covering his entire body, it added.
The nearly 1,000-tonne tanker had unloaded its cargo of crude oil last week and was stationary off the coast of Hyogo prefecture, around 450 kilometres west of Tokyo, when the explosion happened at about 9:20 am.
Akihiro Komura, an official from Syoho Shipping, the Hiroshima-based shipping firm that owns the vessel, confirmed that seven of the eight Japanese crew were rescued, including those injured.
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"The ship unloaded crude oil at a port in Hyogo prefecture, and the tanker was virtually empty when the accident occurred," he told AFP by telephone.
"I heard that a crew member was using a grinder to remove paint and that seems to have triggered the blast, which we believe could have occurred when the remnants of the oil caught fire.
News of the incident prompted Prime Minister Shinzo Abe to interrupt debate in parliament.
"In waters off Hyogo (prefecture), a tanker has exploded and is currently in flames," he told lawmakers.
Television footage shot from helicopters showed thick columns of black smoke billowing from the stricken tanker as water jets doused it.
Jagged shards of metal appeared to show where the tanker had exploded, with large sections peeled back as if they had been jimmied by a giant can opener.
They said four of the seven rescued crew members had been rushed to hospital for injuries, while the other three did not require immediate medical care.
Emergency crews spent the afternoon hosing down the tanker, a coastguard spokesman said.