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The dollar hit a six-month high of 103.13 yen, also bolstered by data showing the US Institute for Supply Management's index of national factory activity rose in November to its best showing since April 2011.
"Investors started to price in expectations that the Fed will cut its stimulus sooner than later," said Isao Kubo, equity strategist at Nissay Asset Management. "Such hopes help the dollar rise against the yen, so it's good for the mood of the Japanese market."
The strong data in the United States renewed expectations the Federal Reserve will soon start to trim its huge bond-buying programme, moving in the opposite direction to the BOJ's commitment to retaining its own unprecedented asset-purchase plan.
Sentiment was buoyed early on after sources at the BOJ said the bank was looking at plans to expand its already massive stimulus programme.
The Nikkei rose 0.6% to 15,740.97 in mid-morning trade, after earlier racing to 15,756.37, nearing a 5-1/2 year peak of 15,942.60 marked on May 23.
Investors bought an array of large cap stocks including exporters, financials and index-heavy weights such as SoftBank Corp, which gained 1.7% and was the second most traded stock by turnover.
Sony Corp rose 1.2%, Mitsubishi UFJ Financial Group added 1.7% and Sumitomo Mitsui Financial Group advanced 1.4%.
The Topix rose 0.5% to 1,264.95.
Some analysts said investors were still somewhat cautious given the market's recent rapid ascent.
"Investors are looking for reasons which can justify the recent gains, so we may not see sharp rises from the current level until they find more catalysts," said Takuya Takahashi, a market analyst at Daiwa Securities.
He said the market is focused on US payrolls data this Friday.
Buoyed by the Japanese government's massive fiscal and monetary stimulus to revive the economy, the benchmark Nikkei has risen about 52% this year, gunning for its best yearly performance since 1972.
The Nikkei added 9.3% last month alone, spurred by strong quarterly earnings and a weakening yen which tends to sharpen exporters' competitiveness offshore.
Other notable gainers included Sekisui Chemical Co, which jumped 20% to a six-year high and was the eighth-most traded stock by turnover after the Nikkei business daily reported that the company has developed a material that can triple the capacity of lithium ion batteries.
