Japan’s economy grew better than expected in the second quarter

Japan’s economy grew better than expected in the second quarter, but a lack of wage growth in the economy and labor shortages are likely to cause problems, markets watchers tell CNBC.

“Despite this very tight labor market there’s very little wage growth in Japan. I suppose you could argue there are echoes of that in other economies, but we need to see that wage growth to see that deflation monster defeated,” Tapan Datta, head of asset allocation at Aon Hewitt, told CNBC’s Squawk Box on Monday.

Datta says that while Japan’s economy is growing, he warns the “deflation monster” has not been conquered and the economy is struck in a grey area between inflation and deflation.

This comes as Japan’s second quarter gross domestic product (GDP) outpaced expectations. Analysts forecast growth of 2.5 percent, but the economy managed to expand by 4 percent in the April to June period.