On Wednesday, the USD/JPY pair updated its 8-month price high, firmly settling within the 152 range for the first time since February this year. The yen remains under intense pressure following the internal party elections within Japan's ruling Liberal Democratic Party (LDP), in which Sanae Takaichi emerged victorious. This means she is now the most likely candidate to become the next Prime Minister of Japan.

However, the leader of the ruling party does not automatically become head of government. Takaichi's nomination must still be approved by parliament — and the LDP does not hold a majority in either chamber. A failed attempt by her predecessor, Shigeru Ishiba, who tried to strengthen his hand through snap elections, has left the Liberal Democrats dependent on their coalition partner, the Komeito party.

The consequences of this dependence are now being felt. Negotiations over forming a new cabinet under Takaichi's leadership appear to be difficult. As a result, the extraordinary parliamentary session (in which her candidacy is to be ratified) has been postponed "at least until October 20" due to the lack of consensus with Komeito.

The USD/JPY reacted to this news with a minor pullback, but still held within the 150 range. Traders remain confident that Takaichi will ultimately lead the Japanese government, with far-reaching implications.

It's worth noting that her victory in the internal party elections was far from guaranteed: she was declared the winner only after a second round of voting, in which the former Interior Minister received 185 votes against Agriculture Minister Shinjiro Koizumi's 156. This contributed to a sharp market reaction, as USD/JPY surged by 650 points in just three days.

Takaichi is a known opponent of interest rate hikes and supports tax reductions and expansive economic stimulus measures. Following her victory, she declared that "the government must take responsibility for monetary policy" and that the Bank of Japan should consider "the best means to achieve its objectives."

Crucially, she also suggested the government may revise the monetary policy agreement with the BOJ, which was concluded in 2013. That agreement reaffirmed the government and central bank's commitment to price stability, specifically targeting a 2% inflation rate.

Potential Changes to the 2013 Framework

What might change if the agreement is revised?

1.A More Flexible Inflation Target

The first – and potentially most impactful – change could be a shift from a strict 2% inflation target to a more "flexible" or "medium-term" target. That would be bad news for the yen, as it would allow the BOJ to tolerate inflation above target for extended periods and delay rate hikes accordingly.

2.New Metrics Beyond Inflation

The 2% target might be supplemented by additional metrics such as wage growth or employment. Unlike the U.S. Federal Reserve, which has a dual mandate (inflation + employment), the BOJ currently focuses solely on price stability. If Japan's central bank starts taking labor market conditions into account, as the Federal Reserve does, that again puts pressure on the yen. For example, even if the BOJ acknowledges that 2% inflation has been achieved, it could still delay action if wage growth is deemed insufficient.

Such prospects are bearish for the yen. The pullback in USD/JPY is a technical correction stemming from stalled negotiations between Sanae Takaichi and Komeito party leader Tetsuo Saito. However, this delay does not mean another candidate will replace Takaichi. The coalition partners are engaged in political bargaining, but a split in the alliance seems implausible — it would hurt both sides. Furthermore, the opposition lacks a unified, viable candidate to challenge Takaichi in the upcoming parliamentary vote. Therefore, any corrective pullbacks in USD/JPY should be viewed as opportunities to enter long positions.

From a technical standpoint, the pair remains either at the upper Bollinger Band or between its middle and upper bands across all higher timeframes. It is also trading above all lines of the Ichimoku indicator. On the H4 and D1 timeframes, this indicator has formed a bullish "Three Line Break" (or "Parade of Lines") pattern — reinforcing the long bias. The first and primary upside target remains 153.50 — the upper Bollinger Band line on the four-hour chart.