Investing.com-- Japan’s economy grew more than expected in the second quarter, reversing a deep contraction from the prior quarter as increased wages helped boost private spending across the country.

Gross domestic product grew 3.1% year-on-year in the June quarter, government data showed on Thursday. The reading was higher than expectations of 2.1%, and improved from the 2.3% contraction seen in the first quarter. The prior quarter’s contraction was also revised lower from 1.8%.

GDP grew 0.8% quarter-on-quarter, beating expectations of 0.6% and improving from the 0.5% contraction seen in the prior quarter.

The positive reading came as private consumption as a part of GDP grew 1% q-o-q in the June quarter, much more than expectations of 0.5% and recovering from a 0.6% decline in the March quarter. This came after major Japanese labor unions negotiated a slew of bumper wage hikes this year- the effects of which are now being felt across the country.

The stronger reading was largely in line with the Bank of Japan’s forecast that private spending will boost the economy in the coming quarters, giving the central bank more headroom to keep raising interest rates.

The BOJ had hiked rates by 15 basis points in July, and flagged more hikes this year on an improving economy.

Capital spending also improved from the prior quarter, rising 0.9%, as expected, while external demand fell 0.1% as expected.

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