Hit hard by the coronavirus outbreak, Japan's economy faces its biggest challenge in more than a decade, with analysts warning of a technical recession and even the worse if this summer's Tokyo Olympics is cancelled.

The epidemic has also hurt the credibility of Abenomics, a policy mix adopted by Prime Minister Shinzo Abe after he took office in 2012, which the government says has helped, together with a robust stock market, expand the economy.

But as the Bank of Japan is widely seen as running short of policy tools to further boost the economy after years of massive monetary easing, Abe is now forced to turn to state coffers for budgetary stimulus as large as the one offered in the 2008-2009 global financial crisis, even though it could deteriorate the country's fiscal health.

"It's possible Japan will slip into its worst recession since the 2008 crisis," said Toshihiro Nagahama, chief economist at the Dai-ichi Life Research Institute.

Nagahama is one of those calling on the government to reduce consumption tax from 10 percent back to 8 percent on all products -- not just food and daily items -- as a provisional measure until the economy returns to normal.

Ahead of the tax hike, Abe and other ruling party lawmakers repeatedly said the increase would be nixed if the economy faced a situation as serious as the financial turmoil.

The Japanese economy shrank an annualized real 7.1 percent in the October-December period as the higher tax dented consumer spending. And it could further contract in the current quarter through this month, entering a technical recession, defined as at least two consecutive quarters of declining gross domestic product.

First-quarter GDP is expected to contract 2.9 percent, according to the average estimate of 34 economists surveyed by the Japan Center for Economic Research, as the viral outbreak has disrupted production and exports and cast a shadow over the global economic outlook.