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The benchmark Nikkei has surged 58% and the yen has weakened 24% versus the dollar since mid-November, when Shinzo Abe, who became prime minister in December, promised bold monetary and fiscal expansionary policies during his election campaign.
A senior dealer said that while movements in the stock market had been tied to the weakness in the yen, a time may come soon when the rally is not just a currency play, but one backed up by improvements in fundamentals, bringing in even more investors.
"I still think US, global money is still underweight Japan. They haven't corrected that just yet," he said, adding that he had two buy orders for every sell order.
The Nikkei advanced 1.4% to 13,721.26, its highest level since June 2008, as the yen was down 0.2% against the dollar at 99.67, within striking distance of 100.
The senior dealer also said many domestic accounts had hugged the sidelines last week ahead of the meeting of the Group of 20 leading economies last weekend.
"It would be interesting today to see if they would come in ... If the domestic investors come in and buy, they would set the stage higher," he added.
Gains in US stocks overnight on the back of strong earnings from the likes of Netflix Inc
Honda Motor Co, Kyocera Corp, semiconductor equipment maker Tokyo Electron and TDK Corp were up between 1.4 and 3.8%.
The broader Topix index rose 1% to 1,154.72 on Wednesday morning.
Ahead of their quarterly earnings later in the day, Canon Inc added 0.1% and Nintendo Co Ltd advanced 3.5%.
Steelmaker JFE Holdings Inc jumped 5.6%, extending the previous session's 0.5% rise after it returned to a recurring profit in the January to March quarter from a loss in the year-earlier period.
Yen weakness is expected to give Japanese companies a big lift in the earnings.
Although it is still early in the latest quarterly reporting cycle, seven of the eight Nikkei companies that have reported so far missed market expectations, according to Thomson Reuters StarMine. That compared with 62% coming in below analysts' forecast in the previous quarter.
"A monetary shock tends to push up personal consumption in a relatively short run probably via wealth effects, but an upward impact on personal consumption tends to fade out rather quickly after two quarters," Credit Suisse wrote in a report.
"This observation suggests that a monetary shock does not lead to a meaningful recovery in the wage level, making purchasing power of consumers deteriorate over a medium run."
