This time last week, USD/JPY was surging on the news that Sanae Takaichi had won the LDP leadership election and would likely become Japan's next prime minister, ING's FX analyst Chris Turner notes.

USD/JPY has to contend with US-China rhetoric

"However, the LDP's coalition partner, Komeito, has walked away from that coalition, and the focus will be on which bloc can garner sufficient votes for a new PM when parliament reopens, probably next Monday."

"Opposition parties are trying to coalesce around a candidate, though an opposition win here does seem to be a tail risk. Anyhow, it seems USD/JPY will not make another run at the highs until Takaichi's position is secured – which may take another week or two."

"In the meantime, USD/JPY has to contend with US-China rhetoric and perhaps some important updates from the Fed. There's a complete outside risk that USD/JPY ends the month back near 147/148, but quite a few pieces need to fall into place for that outcome."