The device will be developed with U.S. firm ResMed Inc , which currently makes products to treat sleep disorders, and will be available in the financial year ending March 2016.
"By using our know-how in gaming... to analyse sleep and fatigue, we can create something fun," Iwata said.
Nintendo, better known for its Mario video game franchise and Wii and Wii U consoles, has said it expects its healthcare division to turn a profit in 2015/2016. The company already offers fitness games on its Wii console, played with a motion sensor controller.
According to an image Iwata shared at a media conference, the device will be about the size of a hand and can be placed on a user's bedside table. It will use microwave transmission sensors to track sleep, with the data collected used to help users cultivate healthy sleeping habits.
Iwata refused to discuss the company's sales expectations for the new device beyond saying that it may be offered via a subscription service rather than a one-off purchase.
"We only start something new if we think we will be able to create a big market, but as I'm not able to discuss pricing plans and other details today I don't think there's much point in giving a figure for our projected scale," he said.
The device was launched a day after Nintendo reported an unexpected quarterly profit, after hit games gave a boost to sales of its Wii U console.
Shares in Nintendo rose as high as 7.7 percent when they opened on the Tokyo stock exchange. They then pared gains to close the morning session up 0.7 percent, slightly outpacing the benchmark Nikkei index, which rose 0.5 percent.