HIGHLIGHTS 2-BOJ's Suda: Rate move needed when sure on economy

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KANAZAWA, Japan, Aug 28 (Reuters) - The Bank of Japan should not relax its guard on inflation risks and should raise interest rates once it is convinced that economic problems have cleared, a hawkish member of the central bank's policy board said on Thursday.

Miyako Suda also said although the momentum for growth in Japan's economy has been weakening, she did not expect a sharp downturn as seen in 1998 or 2001.

Following are key comments by Suda during a meeting with business executives in Kanazawa, central Japan, and a news conference that followed.

MONETARY POLICY

(From news conference)

"Once we can be sure that the economy will return to a sustainable growth path under price stability, I think we should take certain action ...

"I am not saying we should do so when downside risks exist, and downside risks need to be diminished before we take any action. I don't know when that will happen, but it is desirable that we take action when it becomes more likely that the economy will keep growing ...

"Since there is a lot of uncertainty, we need time to fully consider if any such action is OK. In other words, I would like to conduct policy where we can take action somewhat early but with latitude. My basic view is that we want to avoid a situation where we end up needing to raise interest rates aggressively ...

"We are always considering how to conduct monetary policy to be able to achieve sustained growth under price stability in the long run. So at this moment I can only say any policy move is possible ...

"We are at the stage where we are watching both upside and downside risks without any preconception. We are not sending any message with a bias on monetary policy ...

"I think global financial conditions are accommodative because raw material prices continue to rise despite weaker demand for such resources at a time of an economic slowdown.

"When I consider monetary policy, I think about achieving a path toward sustainable growth under price stability at home, but I also consider the global repercussions of our policy. From that perspective, I may have more of a tightening bias than those without such a consideration. But that does not mean I will conduct monetary policy with such a bias."

(From meeting with business executives)

"There's a lot of uncertainty over the outlook for the economy and prices, such as global commodity market and overseas economic developments, while financial markets remain jittery.

"The BOJ will act to maintain financial market stability and conduct monetary policy flexibly while carefully monitoring both upside and downside risks, with an eye on the future path of the economy and prices.  Continued...