The benchmark Nikkei rose 1.2% to 21,134.42 points, its highest close since May 28.

Toyota Motor Corp jumped 1.8%, Honda Motor Co advanced 1.5% and Mazda Motor Corp climbed 1.1%. Japanese automakers have long built vehicles in Mexico, taking advantage of its cheap labour, trade deals and proximity to the United States, the world's largest auto market after China.

The United States and Mexico struck a deal on Friday to avert a tariff war, with Mexico agreeing to rapidly expand a controversial asylum program and deploy security forces to stem the flow of illegal Central American migrants. Trump had earlier threatened to impose tariffs on Monday.

"Investors are unwinding their short positions as risk sentiment shot up," said Nobuhiko Kuramochi, a strategist at Mizuho Securities. "Receding concerns about U.S.-Mexican trade issues and hopes for loose monetary policy are raising investors' risk appetite."

Financials in Japan came under pressure, however, after weak job data reinforced expectations that the U.S. Federal Reserve would move to cut interest rates.

U.S. Treasury yields tumbled, with 10-year yield hitting 2.053%, its lowest since September 2017.

That pulled down Japanese financial firms, which hunt for higher yields, with Sumitomo Mitsui Financial Group dropping 0.2%, while Dai-ichi Life Holdings and T&D Holdings and slipped 0.6% and 0.4%, respectively.

"U.S. short-term yields would stay pressured for a while, but hopes that the Fed would cut rates as a preventive measure before the economy enters a recession are cheering investors," Kuramochi said.

Mobile carriers also were sold after the Nikkei business daily reported that the government will require major operators to slash penalty fees when customers cancel their contracts.

NTT Docomo dropped 1.0 percent, while KDDI Corp and SoftBank Corp fell 1.6% and 1.7%, respectively.

Nissan Motor Co shares showed limited reaction to news that France's Renault SA and the Japanese automaker clashed over governance reform. Nissan closed up 0.8%.

The broader Topix ended the session 1.3% higher at 1,552.94.

(Reporting by Tomo Uetake & Ayai Tomisawa; Editing by Simon Cameron-Moore & Kim Coghill)

By Ayai Tomisawa and Tomo Uetake