'It's my story': US skater Liu looking to upset Sakamoto and Japanese
Liu was third best and is closely followed by another Japanese skater Mone Chiba going into Thursday night's free skating arena.
Liu felt her spellbinding routine to Laufey's "Promise" was "on another level compared to the rest of the season.
"My last spin felt really awesome."
Liu finished sixth at the Beijing Olympics four years ago aged 16 but retired from competing after taking bronze at the 2022 world championships.
The Californian powered back last season, upsetting three-time world champion Sakamoto to take the world title and win the ISU Grand Prix final in December.
"I don't think about stuff like that," she said of her Japanese rivals.
"Whether I beat them or not is not my goal. My goal is just to do my programme and share my story."
Liu, the daughter of a Chinese immigrant who fled to the United States after participating in the Tiananmen Square protests in 1989, will look to clinch another title after winning team gold last week.
"My siblings, my best friends and a ton of my family is out there (in the audience)," she said.
As for nerves, she brushes this aside.
"I don't, because I really want to be here," she said.
"I'm OK if I do a fail programme. I'm totally OK if I do a great programme. No matter what the outcome is, it's still my story."
American women have not taken Olympic gold since Sarah Hughes at the 2002 Salt Lake City Games, and have not medalled since Turin 2006.
Amber Glenn, the reigning and three-time US champion, had got off to a strong start on Tuesday night with a superb triple Axel.
But she missed a planned triple loop and therefore gained no points for the jump, leaving her in 13th place.
"I had it," Glenn, 26, tearfully told her coach in the kiss and cry area.'Feeling of fear'
Sakamoto is competing in her final Olympic Games, and is looking to add the women's gold to her bronze four years ago.
The 25-year-old also helped Japan to a second consecutive team silver in Milan.
"Of course I want a medal," she said.
"It would be very nice, but I want to let everybody know what I have done over my career. I want people to know that there was a skater of this kind in Japan who had performed for a long period."
"Going through the team event and then now going into individual skating, I had been going through so many feelings," said Sakamoto.
"Sometimes it's a feeling of fear, and (whether) all that effort could be rewarded, or many kinds of feeling.
"It's a one-point advantage for her (Nakai), so I think it's manageable to go over the top. I will try to concentrate as much as I can to the last minute."
"The Americans are very good skaters and also, we are good skaters, so it's natural that we are all in the same group. Sometimes we are rivals, but outside of our skating, Amber, Alysa and Isabeau (Levito) are really good friends and really energetic skaters," she added.
Unheralded leader Nakai wants to make her dream a reality aged just 17.
"I feel like I'm dreaming," she said after making a splash with a triple Axel to open and a lively programme performed playfully to the soundtrack of the film "La Strada" by Nino Rota.