The Japanese economy contracted more than expected in the fourth quarter, the largest decline since the sales tax increase in 2014, exacerbating concerns about economic prospects at a time when the spread of the coronavirus epidemic continues to increase the risk of recession.

The jump in the value of the yen and the fall of the Tokyo Stock Exchange – against the backdrop of a price crash in the oil markets – add further strain to the troubles of the Japanese economy, which is already experiencing the effects of an October 8% increase in sales tax from 10%, while tourism and supply chains also face interruptions caused by the coronavirus.

The grim data renewed pressure on the government and the central bank to provide stronger fiscal and monetary support.

“Japan’s economy is already in recession and new signals are emerging that the worst is yet to come”, warns Toru Suehiro, senior market economist at Mizuho Securities. “The Central Bank of Japan (BoJ) does not have many options, as monetary relief cannot cure the disease. The least that the government and the NJC can do is prevent the negative psychological effects of the epidemic from developing”, added Suehiro.

The world’s third-largest economy shrinks year-on-year by 7.1% over the last quarter of 2019, revised data showed Monday, more than the expected 6.3% decline and an average market forecast of 6.6%.

The figure represents the biggest decline for the Japanese economy since the April-June period in 2014 when an increase in sales tax to 8% in April that year pushed the economy into recession.

The deeper contraction than expected and the impact of the coronavirus are exacerbating fears of contraction in January-March, which, in fact, would mean a second consecutive quarter of contraction – which in effect would mean a recession.

Analysts largely blame the slower growth in October-December on the weakness of capital expenditures, previously considered the only bright spot in the island’s otherwise bleak economy.

Japan’s capital expenditures fell 4.6% from the previous quarter, up 3.7% from the preliminary estimate, marking the biggest decline since 2009, driven largely by weak global demand and the Sino-US trade war reflect negatively on the investment appetite.

Private consumption fell by 2.8%, in line with expectations of a 2.9% decline, as households cut their spending after a sales tax hike.

The weakness of domestic demand threatens the central bank’s argument that stable capital expenditures will offset part of the drop in exports.

The BoJ may take additional steps next week to ease the financial strains of companies that have fallen short in sales due to the coronavirus epidemic, people familiar with the matter have told Reuters.

A senior official with the country’s finance ministry told reporters Monday that it will monitor the stock market’s move with increased attention.

If the value of the yen continues to rise, the BoJ may be forced to take bolder steps in terms of financial aid for small companies, analysts say.

The government, for its part, plans to put together a second package of emergency measures to address the virus on Tuesday, though analysts said the expected additional costs are likely to be modest in size and funded by emergency reserves.

Prime Minister Shinzo Abe has come under fire for dealing with the crisis, as the number of coronavirus-infected cases in Japan exceeds 1,100, just as the nation prepares to host the Summer Olympics in July and August.