The Nikkei jumped 2.48 per cent as Tokyo was named host of the 2020 Olympic and Paralympic Games.
The Nikkei 225 index closed at 14,205.23 following the news – an increase from the 13,860.81 posted on Friday.
Tokyo has not hosted the games since 1964, and beat Istanbul and Madrid over the weekend in an International Olympic Committee vote.
After the announcement Japanese prime minister Shinzo Abe said: “We have got a great chance to make Tokyo and Japan shine.
“I want to overcome 15 years of deflation. Hosting the Olympics and Paralympics will have good effects on a wide range of areas such as infrastructure and tourism.”
Overcoming deflation has been one of the main policies of ‘Abenomics’, Abe’s aggressive monetary policy that has seen a weakening of the yen through massive amounts of quantitative easing and also includes plans for structural reform.
The Japanese economic outlook has been improving and last the week after its two-day policy meeting, the BoJ said the country’s expectations “appear to be rising on the whole” while saying that the world’s third-largest economy is “recovering moderately”.
Close Brothers Asset Management chief investment officer Nancy Curtin says: “The red carpet was rolled out last week for Japan’s strengthened Q2 GDP figures when the BoJ announced expectations for inflation are improving.
“But it is not the only sign of recovery as a result of Shinzo Abe’s initial shock and awe approach. Amid strong indications that exports and fixed asset investments are picking up, public investment is rising, and the housing sector looks even more robust.
“With reflationary tactics now bearing fruit, it’s clear that the world’s third largest economy is heading in the right direction, following in the footsteps of an entrenched recovery in the US.”