Japanese stocks rallied to an all-time record close after data was released that showed the Japanese economy beating expectations in the second quarter, as the effects of U.S. tariffs were balanced by somewhat resilient domestic demand and firm exports.

Real gross domestic product in the three months ended in June rose by an annualized 1%, the Cabinet Office reported Friday. Analysts had been forecasting growth of about 0.3% to 0.4%.

The Japanese economy has now expanded for five consecutive quarters.

“The results confirmed that the economy is recovering moderately,” said Ryosei Akazawa, minister in charge of economic and fiscal policy, at a news conference Friday morning.

Private consumption — which accounts for more than half of the GDP — rose by 0.2% as inflation continued to affect real wages and household spending. Corporate capital investment was up by 1.3%.

“The so-called bad inflation, driven by supply-side rather than demand-side factors, continues to squeeze household spending through a decline in real wages,” wrote Takahide Kiuchi, executive economist at Nomura Research Institute, in a report on Friday.

Akazawa also noted how inflation — which was 3.3% in June — could negatively affect consumer sentiment and personal consumption.

Japanese stocks reacted positively to the latest GDP results, with the Nikkei 225 index rebounding above 43,000 in the morning and ending the day up 1.71%, at 43,378.31, which is a record close.

The all-time high of 43,451.46 was reached intraday on Wednesday as stocks rallied following the release of positive economic news in the United States.

On Friday, the yen strengthened to about ¥147 to the dollar.

Positive wage momentum is expected to support a moderate economic recovery, Akazawa said on Friday, while noting downside risks from U.S. trade policy.

Earlier this month, the government revised down its full-year growth projection from 1.2% to 0.7%, citing high prices and U.S. tariff measures.

Despite the U.S. tariffs, Japanese exports rose 2% quarter on quarter in the second quarter, while imports increased by 0.6%. This suggests that the effect of tariffs has yet to materialize significantly, Kiuchi wrote.

During the three-month period, Japanese exporters faced 25% levies on vehicles and auto parts, as well as a 10% baseline tariff on most of all other goods. A 25% duty was placed on steel and aluminum products in March, and the U.S. doubled the rate to 50% in early June.

Japan and the United States reached an agreement on July 22 to reduce the “reciprocal” tariff to 15% from the previously threatened 25%, with the new rate taking effect on Aug. 7. The Trump administration has yet to lower the auto tariffs to the agreed-upon 15%.

Akazawa stressed that wage momentum is a key to economic growth.

The government has established a goal of achieving 1% annual real wage growth through the fiscal year ending in March 2030, as well as raising the national average hourly minimum wage to ¥1,500 during the 2020s.

“To be specific, there are currently 6.6 million people across Japan working at or near the minimum wage,” Akazawa said. “During every election, people grasp my hand and plead with me to make it possible for them to make a living.”

“It seems the level has become extremely difficult to live on. I make it a point to ask governors each time what they think about this,” he added.