Japan's economy expanded by an annualized rate of 4 percent in the second quarter, the government reported Monday. It said the April-June growth rate marked the fastest pace in more than two years.

Economic activity is expected to continue to improve in the coming months, offering the Bank of Japan some hope that a tight labor market is finally starting to boost consumer spending and wages.

Employees' income rose by 0.7 percent in the second quarter compared with the first three months of the year. It was the biggest increase since the July-September period of last year and another sign of the economy's current vigor.

More reforms required

The rosy data played into the hands of Japanese Prime Minister Shinzo Abe, who had faced criticism that his economic agenda had not done enough to revive the country's fortunes.

"The engines of consumer spending and capital expenditure both fired well in the second quarter," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

Japanese Economy Minister Toshimitsu Motegu was more cautious about the economic outlook, warning that more stimulus measures might be needed to maintain the current momentum.

"We'll make sure that the domestic demand-led recovery continues," he said. "What is needed is supply-side reform, and we'll focus our efforts on human resource investment, improvement in productivity and new growth strategies."

hg/jd (Reuters, dpa)