With an "intent to murder", a man identified as 21-year-old Kazuhiro Kusakabe drove a small vehicle into Takeshita Street in Tokyo's fashion district of Harajuku at 10 minutes past midnight, a police spokesman told AFP.
Every New Year's Eve, the train line that includes Harajuku station runs all night.
Kusakabe told the police he had meant to kill the pedestrians he hit "in retaliation for an execution".
It is not yet clear whether he was referring to a specific execution or the capital punishment system in Japan.
Investigative sources quoted the man as saying he had perpetrated an act of terrorism "in retaliation for an execution" and "would not make any excuse" for his act.
In a similar attack in 2008, a man who said he was exhausted of life drove a rental truck into a crowd of pedestrians in Tokyo before jumping out and stabbing several people. The vehicle stopped after crashing into a building.
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A man aged in his 20s has been taken into custody by police and eight people are so believed to have been injured in the attack.
According to national broadcaster, NHK, the suspect fled from the scene and assaulted a passerby before he was captured minutes later.
A large tank filled with kerosene was also found in the vehicle.
Meanwhile, about 120,000 revelers packed into Shibuya's famous scramble crossing but activities were tightly controlled by police and riot police.
He also told the police he had driven the rental auto from Osaka Prefecture and meant to enter Meiji Shrine but was unable to do so because of traffic control. No major trouble had been reported as of 5 a.m. and most people had dispersed by then.