INR/JPY Outlook: Likely to decrease, as the rate is below recent averages, near recent lows, influenced by significant capital outflows and trade deficits in India.
Key drivers:
• Rate gap: The Reserve Bank of India's rate interventions are not keeping pace with the Bank of Japan's recent rate hikes, leaving the INR under pressure.
• Risk/commodities: With oil prices at recent highs, the impact on India's trade deficit reinforces the rupee's downward trend due to increased import costs.
• One macro factor: Japan's easing inflation may encourage continued monetary tightening by the BoJ, potentially strengthening the JPY against the INR.
Range: The INR/JPY is likely to drift within its recent range as downward pressures limit substantial movement.
What could change it:
• Upside risk: Progress in trade negotiations with the U.S. could alleviate some pressure on the INR.
• Downside risk: Any renewed capital flight from India could exacerbate downward pressure on the rupee.
