31-year-old Zhang had to survive four match points and wasted five of her own before winning the final 21-11, 16-21, 30-29 after a marathon final game that went to sudden death.
"At 16-19 down in the final game, I tried to keep myself calm and concentrated on each shot," a relieved and triumphant Zhang said.
"That was the key to the victory. I was able to finish off by playing aggressively at the end."
Zhang had a chance to seal the match at 22-21 in the last, but Xie managed to keep the game alive after a long rally.
A new scoring rule came into play with the match tied at 29-all, with a sudden-death next point wins scenario seeing Zhang prevail with a smash to seal victory.
"Whenever I rushed, I made too many mistakes and we both were very tired at the end of the match," added the champion.
"But in the final game, I was able to hit the shuttle calmly. It decided the winner."
Runner-up Xie had beaten Zhang in the World finals, and at the last two All England finals, but the world number one took her revenge in Tokyo and now leads their head-to-head matches 10-9.
Zhang added the Japan title and a $12,400 winner's cheque to the three crowns she has already won this season following wins at the German Open, Malaysian Open and Taipei Open.
Zhang Ning won her fourth title
of the season in Tokyo
Meanwhile, in the all Indonesian mixed-doubles final, 2004 champion Vita Marissa joined forces with new partner Flandy Limpele to defeat her former partner Nova Widianto and Lilyana Natsier 11-21, 21-18, 21-17.
"It's great revenge after he (Widianto) abandoned me," said Marissa.
"No, it's a joke. We both found a great partner and I'm happy about it. This is our first tournament. I'm very happy that we proved we can cope with a top team."