Given its dwindling ammunition, the BOJ is likely to hold off on expanding stimulus unless an external or market shock deals a more severe blow to the economy, said Hayakawa, who retains close contact with incumbent central bank policymakers.
Prolonged economic stagnation, however, will also prevent the central bank from normalising crisis-mode policies any time soon, he said.
"With inflation very distant from the BOJ's 2% target, the BOJ won't be able to dial back stimulus any time soon," Hayakawa said.
"The best it can probably do is to 'stealth' normalise," or to continue quietly tapering asset purchases, he told Reuters.
The BOJ is set to keep policy steady on Thursday, as signs of progress in U.S.-China trade talks take some pressure off the central bank to tap its depleted policy tool-kit. [nL4N28N15M]
Japan's economy grew by an annualised 1.8% in the third quarter, marking the fourth straight quarter of expansion, gross domestic product (GDP) data showed. [nL4N28G1W8]
But the strong GDP figure contradicts other data painting a weaker picture of the economy, such as slumping exports and output blamed on slow global demand, said Hayakawa, now a senior economist at private think tank Fujitsu Research Institute.
While Japan's economy is expected to rebound next year, any pick-up will be modest as lingering overseas uncertainties and slow wage growth weigh on exports and consumption, he said.
Capital expenditure is also unlikely to strengthen much as many firms already spent years ramping up spending, he added.
"It's quite clear Japan is already in mild recession," said Hayakawa, a former top BOJ economist. "The economy will rebound sometime in the first half of next year, but in such a small way that very few in the public would feel it."
While the United States and China move toward de-escalating their bitter trade war, slumping global manufacturing activity has already taken a toll on Japan's export-reliant economy, the world's third largest.
Factory output posted its largest fall in two years in October and big manufacturers' business sentiment sank to a near seven-year low in the fourth quarter. Exports also slipped for a 12th straight month in November. [nL4N28729E][nL4N28Q0YN]
Many analysts expect the economy to contract in the current quarter as a sales tax hike in October cools consumption.
(Additional reporting by Yoshiyasu Shida; Editing by Jacqueline Wong)
By Leika Kihara