Twenty-three people in the city of Nagoya were injured in the blast, which blew out a row of windows and started a fire that burned for more than an hour in a violent climax to a three-hour standoff televised by national media.
Glass shards showered the street, papers were scattered into the air and smoke billowed from the fourth floor of the building, occupied by a parcel delivery company. Witnesses described bystanders screaming and trying to shield their faces with newspapers.
"The blinds were sucked in and then the entire floor just turned red," said Koji Hirano, a banker who was walking by. "Glass was raining down everywhere."
Police identified the hostage taker as Noboru Beppu, 52.
Armed with a knife, he burst into the parcel delivery company, took eight employees hostage and doused the floor with an unidentified liquid, said Makoto Furuta, a state police spokesman. People evacuating the building said they smelled gasoline.
Media reports said the hostage taker was seeking about $2,300 in unpaid wages from the company, Keikyubin, but Furuta was unable to confirm those reports.
Beppu released seven of his hostages about 10 minutes before the blast, keeping with him only the 41-year-old manager of the office, who was later confirmed dead. It was unclear if the police officer killed was inside the office when the explosion went off Tuesday afternoon.
A 26-year-old man suffered a minor stab wound when he grappled with the hostage taker after he stormed into the office, Furuta said. He was released shortly afterward with 22 women working there, leaving Beppu with eight hostages for most of the standoff.