A man wearing a protective face mask, following an outbreak of the coronavirus, stands at the Shinagawa station in Tokyo, Japan, February 28, 2020.

Japan's economy shrank faster than initially estimated in the fourth quarter on a bigger decline in business spending, casting a deeper shadow over the outlook as the coronavirus hit production and heightened recession risks.

The economy is under growing pressure as the outbreak disrupts supply chains and damages tourism, which follows the hit to consumption after October's sales tax hike.

The deeper contraction and the virus have fueled fears Japan could see growth contract for two straight quarters in the current quarter, defined as the technical recession, piling pressure on policymakers to deploy further stimulus steps.

The economy shrank an annualized 7.1% in October-December, the biggest fall since April-June 2014 and weaker than the preliminary reading of a 6.3% annualized contraction, Cabinet Office data showed on Monday. The reading compared with economists' median forecast for a 6.6% fall.

Capital spending dropped 4.6% from the previous quarter, worse than a preliminary 3.7% decline and compared with the median forecast for a 4.3% fall.

Business expenditure has been a lone bright spot in Japan's fragile economy, led by investment in technology to cope with a labor shortage, however, analysts warn the coronavirus is now hurting appetite for such spending.

Private consumption fell 2.8% from the third quarter, roughly in line with the preliminary 2.9% decline.

In addition to the sales tax hike last October, a warmer winter sapped demand for seasonal items such as clothes.

The government plans to compile a second package of emergency measures to deal with the virus on March 10, which includes zero-interest loans to companies hit by the epidemic.

Prime Minister Shinzo Abe has come under fire for his handling of the crisis as the number of coronavirus cases in Japan reached over 1,100, just as the nation prepares to host the summer Olympic Games in July and August.

Growing recession fears have also added pressure on the Bank of Japan to underpin the fragile economy despite its dwindling ammunition.

Capital expenditure will be a key focus for the central bank as it weighs options to reduce the fallout from the widening coronavirus outbreak, sources told Reuters.