Slammed by the coronavirus outbreak, Japan’s economy is facing its biggest challenge in over a decade, with analysts warning of a technical recession and worse if the Summer Games are canceled.

The pandemic has also hurt the credibility of Abenomics, the “three arrows” program of monetary easing, fiscal spending and structural reforms touted by Prime Minister Shinzo Abe after he took office again in 2012. His government credits the program with expanding the economy and stock market.

But with substantial reform scarce, and the Bank of Japan running out of tools to help after years of massive monetary easing, Abe is being forced to tap the state coffers to generate budgetary stimulus as large as that offered during the 2008 global financial crisis, though it might erode Japan’s already fragile 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 temporarily retract the Oct. 1 consumption tax hike and make it 8 percent for 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 it would be nixed if the economy faced a situation as serious as the 2008 financial crisis.

The economy shrank an annualized real 7.1 percent in the October-December quarter as the tax hike dented consumer spending. Another contraction is expected this quarter, which would leave Japan in a technical recession, which is defined as at least two consecutive quarters of declining gross domestic product.

In the first quarter, GDP is expected to contract by an annualized 2.9 percent, according to the average estimate of 34 economists surveyed by the Japan Center for Economic Research. The outbreak has disrupted production and exports and cast a shadow over the outlook for the global economy.

The government’s policy of restricting public events to prevent infections “is causing great damage” to the economy, Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities Inc., said.

The pandemic has also threatened the 2020 Olympics slated to begin on July 24. Amid growing speculation that the games might be postponed for a year or two, or even canceled, analysts have started simulating the tremendous losses that a cancellation would inflict on the economy.

“If it’s canceled, the damage would be unmeasurable. This could also deteriorate public sentiment significantly,” Nagahama said.

The focus is on how large the government’s next fiscal stimulus package will be.

To buoy household spending, any emergency steps are likely to include cash handouts, the extension of the reward points program for cashless payments, and a lowering of the recently hiked consumption tax, sources close to the matter said.

Austerity is also in focus, however.

Abe has already introduced policy packages worth more than ¥1 trillion to fight the coronavirus, in addition to a ¥26 trillion stimulus launched in December to soften the impact from the Oct. 1 tax hike.

The latest measures will likely be financed by the supplementary budget for fiscal 2020 and by issuing even more government debt, exacerbating Japan’s poor fiscal health, the worst among the major developed countries.

“Now is the time to temporarily shelve the viewpoint of fiscal discipline, and give priority to putting the economy back on a growth path,” Maruyama said.

RELATED PHOTOS Japan is facing its biggest economic challenge in over a decade amid the coronavirus crisis, a situation that could get much worse if the Olympics is postponed or canceled. | KYODO