Reynolds, of North Vancouver, B.C., was only sixth after Friday's short program but landed three quads and finished with 250.55 points in the final at Osaka Municipal Gymnasium. Hanyu led after the short program but settled for second with 246.38 points, while China's Han Yan was third with 235.22.
U.S. national champion Max Aaron, who was 10th after the short program, finished fourth with 234.65 after a strong free skate to Westside Story.
The 22-year-old Reynolds, who is a crowd favourite in Japan, opened with a quad salchow and also landed two quad loops in his routine. His only deduction was on a triple lutz.
"This is beyond anything I could have imagined," Reynolds said. "Going into the free program I was in sixth place so I knew I had a chance if I did everything right in the free skate."
Andrei Rogozine of Richmond Hill, Ont., finished 10th while Elladj Balde of Pierrefonds, Que., was 18th.
Reynolds said finishing second at the national championships gave him confidence heading to the Four Continents.
"I was able to do two strong performances at the nationals so that gave me a lot of confidence coming here," Reynolds said. "But like I said, this is beyond anything I could have imagined."
World silver medallist Daisuke Takahashi of Japan had a disappointing free skate and finished in seventh place.
Earlier, two-time world champion Mao Asada of Japan took the lead in the women's competition.
Asada re-introduced her trademark triple axel to take a comfortable lead over compatriots Akiko Suzuki and Kanako Murakami.
Asada hadn't attempted the triple axel in the four events she won this season, but did so on Saturday to finish with 74.49 points. Suzuki finished second with 65.65 points while Murakami was third with 64.04.
Skating to "I got Rhythm," Asada's sassy performance thrilled the capacity crowd and put her in a good position to regain the title she lost at last year's Four Continents to American Ashley Wagner.
The inclusion of the triple axel will give Asada a boost heading to the world championships in London, Ont., next month. She has been struggling with the triple axel since the 2010 Vancouver Olympics but had no problems with it on Saturday.
"I've been saying I will include the triple axel at some point and was glad I did it today," Asada said. "I wasn't really sure it would be at this competition but I felt good in practice so decided this was the time to attempt it and I was very pleased with the result.
Suzuki hit all her jumps in a lively routine to the "Kill Bill" theme song.
"Since the end of last year my jumps weren't that good," Suzuki said. "But they were much better today and that will give me a lot of confidence."
American Cristina Gao was fourth with 62.34 points followed by compatriot Gracie Gold who had 60.36 points.
Kaetlyn Osmond of Marystown, N.L., is the top Canadian in the women's competition, standing eighth. Japanese skaters hold down the top three spots with Olympic silver medallist Mao Asada first, Akiko Suzuki second and Kanako Murakami third.
Amelie Lacoste of Delson, Que., is ninth while Julianne Seguin of Longueuil, Que., in her senior international debut, is 12th out of 20 entries.