One man suffered minor burns to his face from the blast on the southern island of Kuchinoerabujima, however, no other injuries have been reported.
Huge plumes of black smoke filled the sky after the volcano erupted on the island which is around 1,000 km (621 miles) southwest of Tokyo.
Residents gathered on the roof of an evacuation centre as lava flowed down the side of Mount Shindake.
Smells of sulphur
“It sounded like dynamite had exploded, and the house shook,” one resident told TV Asahi. Others described a smell of sulphur and clouds of smoke that blacked out the sky.
The coast guard ship was sent to evacuate the island’s 137 residents, whose only access to the outside world is via boat.
“All I could bring were a few emergency goods. It was utter chaos,” one man told Fuji TV. “I’m really worried about things back home.”
An ash cloud reached more than 9,000 metres into the sky causing airlines travel chaos. Japan’s All Nippon Airways said it would divert some flights to Okinawa and Southeast Asia.
Officials have now warned of more possible eruptions and Japanese Prime Minister Shinzo Abe has set up and emergency response team. Speaking in Tokyo, he said officials will do everything they can to look after the islanders.
“We will expend all our efforts to ensure the safety of all the residents of the island,” Mr Abe said.
Volcanic eruptions are common in Japan as more than 30 people died in Septemer when Mount Ontake erupted.