HIGHLIGHTS-BOJ board member Mizuno's comments in Aomori

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AOMORI, Japan, July 24 (Reuters) - The fog hanging over Japan's economy is unlikely to clear any time soon, Bank of Japan Policy Board member Atsushi Mizuno, seen as one of the board's most hawkish members, said on Thursday.

Rises in energy and raw material prices have had a far larger impact both on the economy and prices than the BOJ had expected when it drew up half-yearly economic forecasts in April, Mizuno said in a speech to business leaders in Aomori, northern Japan.

He also said in a news conference that he was more concerned about downside risks to the economy than about inflation.

Following are key comments from the speech and at a news conference:

MONETARY POLICY

"My personal view is that downside risks to domestic demand are heightening due to a rise in energy and raw material prices. Prices are rising but we are not in a situation where wages also rise, leading to stagflation. I think it is appropriate to have more awareness of downside risks when conducting monetary policy."

"I just can't say now under what conditions we will be able to raise rates. The fog hanging over the Japanese economy may thicken. The U.S. economic slowdown may go deeper. Oil prices seem to be stabilising for now, but it's just too early to say whether they are peaking out. We just have too few data" to talk about the conditions for a rate hike.

"The BOJ has kept interest rates unchanged since March last year, but there is no change in our view that monetary conditions remain accommodative."

"In a statement on monetary policy issued on July 15, we said, 'If the downside risks to the economy happen to decrease, this will increase the risk of possible swings in economic activity and prices due to a prolonged period of accommodative financial conditions.'"

"I hope you understand that means we are discussing appropriate monetary policy at each board meeting, while always keeping in mind the side effects of continually leaving the rate at 0.5 percent, taking into account Japan's potential growth rate."

JAPAN'S ECONOMY

"Industrial production may be flat or fall slightly in April-June and July-September after the fall in January-March.

"Considering that, there is a chance the government will say in future that Japan has entered a recession. But at the same time, I'd like to also stress that it is unlikely that Japan will go through a deep recession because companies have worked through their triple excesses (in facilities, inventory and employment from Japan's asset bubble era in the early 1990s)."

"I think there is a possibility that it will take more time than the BOJ officially says before the Japanese economy recovers."

"I'm not confident about whether Japan's growth in 2009/10 will be higher than 2008/09. The U.S. economic outlook, East Asian economic conditions and financial market problems are all becoming more complicated than markets, as well as the BOJ, had expected a year ago, or half a year ago. We cannot be optimistic about the outlook for oil prices either."