Ltd. gained on speculation it was set to seal a deal to buy British glass maker Pilkington Plc.
Investors looking for bargains also picked up Advantest Corp., though Sony Corp. and other exporter blue chips fell after the yen strengthened against the dollar, reducing the value of their overseas earnings.
The Nikkei gained 91.04 points to 16,192.95, the highest close since Feb. 10. The broader TOPIX index rose 0.55 percent to 1,656.82.
The market sentiment remains strong, but further proof of the strength of company earnings will be needed to plough ahead, said Junichi Misawa, a senior fund manager at STB Asset Management.
"There are expectations that corporate earnings will grow 5 to 10 percent next fiscal year, but we don't have enough evidence to support that, and without (that proof) it will be difficult for the Nikkei to rise to 16,500 or 17,000 at the moment," he said.
Nippon Steel rose 5.2 percent to 465 yen, its highest point since 1991 after the business daily Nihon Keizai Shimbun reported on Saturday that the company will likely report a 40 percent rise in its recurring profit this year, pushing up its share prices.
Some local media also reported at the weekend that if Mittal Steel's takeover bid for Arcelor fails, Japanese steel companies may become an alternative target, which fueled buying in the sector, said Masayoshi Okamoto, head of dealing at Jujiya Securities.
"There is a global realignment trend in the steel industry ... it's a matter of how you look at Nippon Steel, the world's third-largest steel maker," Okamoto said.
JFE Holdings Inc., the world's fourth-largest steel maker, also rose 3.8 percent to 4,420 yen and Sumitomo Metal Industries gained 3.6 percent to 520 yen.
After the market closed, Nippon Sheet Glass said it would buy Pilkington for 1.8 billion pounds ($3.14 billion) and would raise 110 billion yen through convertible bonds. Prior to the announcement, shares in Nippon Sheet Glass jumped 5.2 percent to 509 yen on speculation that the company was ready to close a deal with Pilkington.
In a separate earnings-related report, Sumitomo Metal Mining Co. Ltd., Japan's top gold and nickel producer, jumped 5.3 percent to 1,604 yen after the Nihon Keizai Shimbun said the company will likely post a 47 percent rise in recurring profit this year thanks to climbing metal prices.
Advantest, the world's largest maker of chip testing equipment, rose 2.8 percent to 13,460 yen. The stock had fallen 9 percent since the beginning of February, compared with a 3.6-percent drop in the TOPIX.
With the yen riding high against the dollar, technology exporters like Sony Corp. dropped 0.2 percent 5,640 yen.