By Leika Kihara

TOKYO (Reuters) - The Bank of Japan has little room left to expand stimulus with a cut to around minus 0.5 percent the limit to how much further it can deepen negative interest rates, Hideo Hayakawa, a former senior central bank executive, said on Thursday.

Hayakawa, who retains close contact with incumbent policymakers, also said the BOJ will eventually slow the pace of its government bond purchases but will do so very cautiously.

"There is a limit to how much the BOJ can deepen negative rates in Japan," Hayakawa said in a Reuters forum.

A cut beyond minus 0.5 percent will likely force commercial banks to charge fees on deposits, prompting households to withdraw deposits and hoard cash, he added.

The BOJ switched its policy target to interest rates from the pace of money printing in September, after years of massive asset purchases failed to jolt the economy out of stagnation.

Under a new "yield curve control" framework, the BOJ pledged to keep the 10-year bond yield around zero percent. It also maintained a policy of charging a 0.1 percent interest on a portion of excess reserves financial institutions park with the central bank.

Hayakawa was among the few analysts who predicted the BOJ will shift its target to interest rates. He told Reuters in August that setting a cap on long-term rates and buying bonds to keep yields below that level may be an option.

Under the new framework, the BOJ's main means of monetary easing would be to deepen negative rates or cut its 10-year bond yield target. The central bank also kept a loose pledge to keep buying government bonds so its holdings increase at an annual pace of 80 trillion yen ($752 billion).

Hayakawa said the BOJ revamped its policy because there were limits to how much more it can buy government bonds, and thus would slow its bond buying if inflation picks up.

"If domestic prices start to rise, the BOJ may adjust its long-term interest rate target. In that sense, its yield curve control is sustainable medium-term," said Hayakawa, now a senior analyst at private think tank Fujitsu Research Institute.

"But there would be many difficulties" such as determining when to scale back asset purchases or raise the BOJ's interest rate targets, he added.

(Reporting by Leika Kihara; Editing by Simon Cameron-Moore)