The Nikkei share average closed up 1.1 percent at 20,773.49, after reaching 20,869.42 in the morning, its highest level since Jan. 21.

For the month, the Nikkei gained 3.8 percent, after diving 10.5 percent last month.

The Topix rose 1.1 percent to end at 1,567.49, the highest closing level since mid-December.

The Federal Reserve on Wednesday signalled its three-year-drive to tighten monetary policy may be at an end amid a suddenly cloudy outlook for the US economy due to global risks and impasses over trade and government budget negotiations.

As it held interest rates steady, the US central bank also discarded its promises of "further gradual increases" in interest rates, and said it would be "patient" before making any further moves.

Analysts said Japanese investors welcomed the Fed's more cautious stance, but noted it would tend to weaken the dollar and boost the yen, posing a risk to export-oriented stocks.

"The market rallied today but the gain is not as big as that of Wall Street because investors are worried that a weaker dollar to the yen is going to cut back on Japanese exporters' profits," said Takuya Takahashi, a strategist at Daiwa Securities.

The dollar dropped 0.3 percent to 108.78 yen.

Chip equipment maker Advantest Corp jumped 7.9 percent, after it hiked its annual operating profit outlook. TDK Corp also surged 8.1 percent as its annual operating profit outlook cut to 110 billion yen was in line with market expectations.

However, Screen Holdings dived 10 percent after the company cut its net profit outlook sharply to 17 billion yen from 30.5 billion yen for the year ending March. It also slashed its dividend payout forecast to 91 yen per share from 155 yen per share.

"The market environment is worsening, but Screen's internal factors are responsible for the sharp downward revision," said Masahiro Nakanomyo, equity analyst at Jefferies Japan.

He said margins are being hurt by costs related to specification changes by some customers and profitability erosion due to an aggressive sales strategy.

Dainippon Sumitomo Pharma plunged another 17 percent, extending a 19 percent dive on Wednesday on disappointment over its unsuccessful joint drug clinical trial with SanBio Co. The stock was the biggest percentage loser on the board.

SanBio, listed on Tokyo's start-up Mothers market plummeted 17 percent after it dived 26 percent on Wednesday.