For the past two weeks, the index has traded in a range between 13,600 and about 13,970, with volumes subdued by public holidays over the past week.
But with markets re-opening on Tuesday after a long-weekend, the bullish momentum is back, spurred on by further falls in the yen that is giving Japanese exporters an edge in overseas markets.
The yen, which shed 14 percent so far this year, has lost a further 1 percent since Thursday. The currency weakened to the 99 handle against the dollar on Friday after an upbeat U.S payrolls report.
The Nikkei rose 2.8 percent to a high of 14,097 on Monday, taking the index back to levels not seen since U.S. investment bank Lehman Brothers collapsed in September 2008, sending financial markets globally into a tailspin.
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"When you look at the facts, you see the Nikkei rally so far has been supported by upward revisions in earnings expectations. Now, we're going to have to see a premium develop in the Japanese market," said Jesper Koll, head of Japanese equity research at JPMorgan Securities Japan on CNBC's Asia's "Squawk Box."
The yen's slide has been a principal factor behind Japan's strong first-quarter corporate results. According to data from Thomson Reuters StarMine, 52 percent of the companies that have so far reported earnings have either beat or met market expectations.
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"The price-to-earnings multiple on forward earnings is about 15 times - we expect that this can expand to 18 times. For the last decade, the average multiple has been 19 times so there is room to believe that a Japan premium is warranted," Koll added.
The Nikkei is up 34 percent so far this year, making it Asia's best performing equity market.
Automakers led gains in Tuesday's rally with shares of Nissan, Toyota and Suzuki all surging over 4 percent each ahead of reporting earnings this week. Analysts say they are paying attention to whether Prime Minister Shinzo Abe's economic policies - dubbed "Abenomics" - aimed at reviving Japan's economy, can also shift the country's auto sector into high gear.
One expert told CNBC that regardless of foreign exchange rates, Japan's major exporters will continue to invest overseas.
"Most car makers make the majority of their profits outside Japan, especially in the U.S., China and Southeast Asia. So, the Japanese car market is expected to decline long-term while those overseas markets are expected to grow. Regardless of exchange rates, Toyota, Nissan and Honda are going to continuously invest overseas to build up their capacity," said Koji Endo, managing director of Advanced Research Japan.
— By CNBC.Com's Nyshka Chandran; follow her on Twitter @NyshkaCNBC