The Gunners have developed new depth at centre-back following the deadline day signing of David Luiz from Chelsea and Calum Chambers' return from a loan spell at Fulham.
Mustafi, 27, ranks behind that pair and Sokratis Papastathopoulos in the pecking order and could still be allowed to find a new club before the transfer window closes across Europe on September 2.
Signed in 2016, the Germany international has failed to impress in the Premier League and was booed by his own fans during a friendly loss to Lyon at Emirates Stadium.
"I spoke with him when we finished last season, I spoke with him when we started pre-season and I spoke with him also two weeks ago saying maybe there was the possibility he can leave," Emery said of the former Sampdoria and Valencia player.
"But I don't have doubts if he needs to play because he is a good player.
"We decided to be more competitive in each position, at centre-back with David Luiz, with another player in the middle with [Dani] Ceballos, with Kieran Tierney, with [Nicolas] Pepe.
"I think being more competitive [means] we can respond better in the season.
"Some players, maybe they can play less with that situation and can leave.
"But it's one decision taken with the player, with the club, with the team. At the moment [Mustafi] is here and really, if we need, he plays with us. I have confidence he will do well."
Mustafi's likely replacement, David Luiz, has not been without his own detractors.
"My first reaction was that something must have happened in the changing room as I couldn't see him leaving the club."— beIN SPORTS (@beINSPORTS) August 10, 2019
Chelsea legend Gianfranco Zola says he was surprised they sold "leader" David Luiz to Arsenal, calling it "good business" for the Gunners.#beINPL #CFC #AFC pic.twitter.com/GtJxdUjm2c
The 32-year-old courted criticism for erratic performances throughout two stints at Stamford Bridge, but Emery is backing the Brazilian to be a success in north London.
"Last year he won the Europa League and he played every match in the Premier League," the Arsenal boss said
"It's very difficult to find something negative from him. There are a lot more positive things to help us."