The Nikkei jumped 2.3% to 11,113.95, its highest close since April 23, 2010.
Gains in Yahoo Japan Corp and Softbank Corp on optimistic profit expectations also gave a boost to Tokyo stocks, while earnings-related news dominated the market as investors awaited trading cues from the corporate sector.
"The market is surprisingly bullish even though it's before the FOMC meeting. The investors have already been buying stocks quite aggressively," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.
"If Fed Chairman Bernanke makes positive comments on the US economy later today, the dollar could strengthen further against yen to hit 92 yen. Then the Nikkei average would rise further, heading towards 12,000."
Index heavyweight Softbank rose 3.6% after Dish Network Corp decided against filing to block Sprint Nextel Corp's <S.N> proposed deal with the Japanese mobile operator, at least for now, citing its ongoing negotiations with Clearwire Corp <CLWR.O> and uncertainty over that company's ownership.
The Nikkei business daily also said Softbank likely generated an operating profit of about 590 billion yen for nine months ended December, up 10% on the year. The company is to report earnings on Thursday.
Yahoo Japan surged 17.1% after it said it planned to buy back up to 20 billion yen of its own shares, or 1.4% of its issued stock.
Real estate surges
Real estate companies climbed 3.5% and were the top sectoral performer on expectations the central bank would step up its monetary policy easing.
The dollar was at 90.95 yen, near Monday's 31-month high of around 91.25 yen. The yen has been mostly a one-way bet since mid-November, based on expectations that Japanese Prime Minister Shinzo Abe would push the Bank of Japan into more aggressive monetary easing to beat deflation.
The Nikkei has risen 28% since mid-November, when Abe, then a candidate for leader of the opposition and now prime minister, began calling for aggressive monetary easing in his election campaign.
The broader Topix gained 1.5% to 934.67, with 3.13 billion shares changing hands, down from 3.47 billion on Tuesday and last week's daily average of 3.44 billion.
Earnings in focus
With quarterly earnings for the October-December period in the spotlight, analysts said that investors were focused on prospects for the fiscal year ending March 2014 as they start scrutinising companies' financial details such as how far a recently weak yen can push up bottom lines.
"Before, investors were like 'just buy bellwether Japan stocks', but now they are being selective," said Hiromichi Tamura, chief strategist at Nomura Securities.
"Many of them still want to add more Japanese shares to their portfolios, and companies that are reporting strong results and forecasts are in focus."
"Investors have shifted their focus to prospects for the full-year (ending this March) as well as next year (through March 2014)," said Hiroichi Nishi, an assistant general manager of equity investment at SMBC Nikko Securities.
After the bell, Canon Inc said it expected a 26.6% rise in operating profit this year as it cuts costs and gets a boost to revenues from a weakening yen, although the rise fell short of analysts' expectations.
The stock was up 2.9% before the results announcement.
Komatsu Ltd reversed its earlier losses to end 2.2% higher as investors bet on strong fourth-quarter performance even though the world's second-biggest maker of construction machinery cut its earnings guidance for the financial year to March.
