Japan's economy shrinks faster than estimated as virus compounds recession risk

If the yen continues to rise, the Bank of Japan may be pressured to take bolder steps beyond financial assistance for small firms, analysts said.

"There were market rumours the BOJ could hold an emergency meeting before its scheduled interest rate review on March 18-19, to ease policy. The trigger could be the Nikkei's slide below 20,000," said Dai-ichi Life Research Institute economist Koichi Fujishiro.

"If that happens, the BOJ could ramp up its purchases of exchange-traded funds (ETF) to around 9 trillion to 10 trillion yen" from the current 6 trillion yen ($58.62 billion), he said.

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The government, for its part, plans to compile a second package of emergency measures to deal with the virus on Tuesday, though analysts said any spending will likely be modest in size and funded by reserves set aside for emergency purposes.

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

Under a policy dubbed yield curve control, the central bank guides short-term interest rates at -0.1% and the 10-year government bond yield at around zero. It also buys risky assets such as ETFs to funnel money to the economy.