"Extreme pessimism eased in the market as sentiment cheered the yen's retreat and sharp gains across Asia," said Yutaka Miura, senior strategist at Shinko Securities Co. Ltd.
The Nikkei's rebound was in line with a surge in Hong Kong as the Hang Seng index jumped more than 12 percent in afternoon trading - a day after plunging more than 12 percent. South Korea's Kospi rose 5.6 percent.
In Tokyo, it was volatile trading as the Nikkei index opened lower, slipping below the 7,000-level at one point in the morning session and rebounding sharply toward the end of the afternoon session.
As the yen eased, lifting the dollar to the 95 yen level, investors stepped in to buy exporters like Sony Corp. and Toyota Motor Corp., whose shares have plunged. The yen hit 90.89 to the dollar last Friday, the highest since August 1995. A strong yen cuts exporters' overseas earnings when repatriated.
Miura added investors also welcomed Japan's new restrictions on short-selling of stocks - or bets that a stock's price will fall - as the government was moving quickly in a bid to calm recent market jitters.
Still, the Nikkei is about half of where it was at the start of the year.
And analysts cautioned that Tuesday's recovery may be short-lived due to lingering worries over a prolonged slump in the global economy.
"The outlook for the global economy remains so unclear. It's too early to cheer as we are still facing ongoing fears over a global downturn," Miura said. Pessimism over Japanese corporate earnings also grew as a slew of major companies announced weaker earnings projection and sluggish profit reports in the face of a global downturn.
Japan's top automaker, Toyota rose 7.8 percent to 3,170 yen. Its rival Honda Motor Co., surged 14 percent to 2,065 yen.
Shortly after the market closed, Honda reported a 41 percent drop in second fiscal quarter profit on declining sales and an unfavorable exchange rate, forcing Japan's second biggest automaker to lower its forecast for the full year.
Sony gained 9.6 percent to 1,996 yen. Game maker Nintendo edged up 1.1 percent to 24,680 yen.