It was the eighth seed's second career title after winning in Delray Beach in 2008 and will elevate the 22-year-old from 17th to 15th in the world rankings.
"I'm partying tonight," Nishikori said in a courtside interview as a sell-out Tokyo crowd went wild. "I'd thought the Gods were against me at this event in the past.
"To win the title is amazing. I'm overwhelmed.
"I don't know what I'm going to do with a year's worth of Corona beer," added Nishikori, sheepishly referring to a bonus gift from tournament sponsors. "I don't even like beer."
Nishikori took the first set tiebreak 7-5 after a jaw-dropping running backhand pass, clenching his fist to salute the roars of the crowd.
Sixth seed Raonic took the second, drilling a bullet serve at Nishikori's body as the cheers of the majority among the 13,000 centre court fans turned to groans.
However, Nishikori stormed back in the decider, ripping another fierce backhand pass down the line to open a 4-0 lead, leaving his Canadian opponent gaping in disbelief.
He delivered the coup de grace moments later, a lofted return forcing Raonic to smash a drive volley into the net after two hours, eight minutes to complete a final set 'bagel'.
"It's absolutely unbelievable to win in Japan," added Nishikori, now $308,000 richer. "To win an ATP 500 event will give me more confidence in the future.
"I'd never played well in Japan but since beating (second seed) Tomas Berdych (in the quarter-finals), I felt I'd broken that wall down. To reach the top 10 is my target now."
Both players were presented with flowers by Australian Ken Rosewall, who won the title in 1973, the first year the Japan Open became an official tournament.
"Kei is a superstar in Japan," said Raonic, who shocked last year's winner and US champion Andy Murray in the semi-finals and fired down 14 aces against Nishikori.
"I don't think I had a letdown after beating Murray. Kei is so quick and he was reading my serves well, which doesn't usually happen.
"I love coming to Japan and thanks Japan for inventing sushi. I love it."
Raonic, projected to rise one spot to 14th in the rankings, won 71 per cent of his first-service points to the 66 of Nishikori, but was only able to win 38 per cent of his second serves while the fans' favourite managed a whopping 75 per cent.
The Montenegrin-born player won the Chennai Open in January and San Jose tournament in February. He was seeking a fourth ATP title in Japan.