AED/JPY Outlook: Slightly weaker, but likely to move sideways, as the rate is below its recent average and lacks a clear driver.
Key drivers:
- Rate gap: The UAE's central bank maintains a stable stance, while the Bank of Japan is reducing its bond purchases, which may support the yen's strength.
- Risk/commodities: Oil prices are currently near 90-day highs, which typically strengthens the AED but may pose pressure on JPY due to its linkage with global market fluctuations.
- One macro factor: Japan's fiscal concerns, particularly regarding PM Takaichi's proposed tax cuts ahead of elections, are raising questions about fiscal stability and could dent confidence in the yen.
Range: The AED/JPY is likely to hold within its recent range, with limited movements expected in either direction.
What could change it:
- Upside risk: A significant rise in oil prices could enhance the AED's appeal, driving rates higher.
- Downside risk: Further policy tightening by the BoJ could solidify the yen's strength and place downward pressure on the AED/JPY exchange rate.