BOJ's Mizuno:Japan core CPI to reach around 1.5 pct

TOKYO, June 2 (Reuters) - Bank of Japan Policy Board member Atsuhi Mizuno expects Japan's core consumer inflation to rise to around 1.5 percent and Japan's economy to grow sustainably over the next two years.

Writing in a weekly magazine published on Monday, Mizuno also said the world's central banks are likely to gradually shift their focus towards inflation and away from the risk of a global slowdown.

But he added that tackling inflation is more complicated for the BOJ, noting that in Japan, it is largely driven by import price inflation due to surging energy and raw material prices. "The core CPI inflation rate is likely to rise to around 1.5 percent in May and the following months," Mizuno wrote in the Mainichi Shimbun's Economist magazine.

Japan's core CPI inflation hit a decade-high of 1.2 percent in March. Although it dipped to 0.9 percent in April, many economists expect it to rise to at least 1.4 percent in May.

Mizuno said wage and employment conditions will be crucial in determining the BOJ's future monetary policy, adding that wage growth has been firm so far this year.

He also said Japan's basic growth mechanism, in which exporters' gains spill over to the household sector, is still intact.

"While there's concern that a rise in inflation could eat into real income and hurt the economy, the Japanese economy is likely to stay on a growth track in 2008/09 and 2009/10, as long as that mechanism is in place," Mizuno said.

He also said growing inflation expectations are making it easier for companies to pass on rising costs, adding that consumption-related data has been firm.

Mizuno also said rising inflation is now emerging as a big uncertainty within the world's economic outlook.

To deal with inflation, emerging economies with high growth rate have been raising interest rates or reserve requirements. Developed countries, on the other hand, have been focusing on the danger of a global slowdown, Mizuno said.

"But in the future, more and more central banks are likely to gradually shift the weight of their policy to guarding against inflation, away from concerns about a slowdown," he said.

Mizuno said he doubted that the worst is over for credit markets in the United States and Europe, noting that U.S. housing prices are still falling.

Strains in money markets remain, and tighter lending by U.S. banks could hurt the real economy, he added.

"The recent rebound in the world's share prices seems to me a bear market rally," the former bond strategist said.

Still, that is not his major concern, Mizuno said.

"At the moment, people are focusing on the economy and financial system in the United States. But personally, I'm more concerned about the economy and price outlook in emerging economies," Mizuno said.