The Nikkei remains in a broader uptrend despite Tuesday’s rout, but growing chatter around possible intervention means USD/JPY could hold the key to what happens next.Nikkei washout puts downside levels in focusUSD/JPY hovers near multi-decade highsKatayama-Bessent talks fuel BOJ intervention chatterHawkish Fed underpins US Dollar strengthThe froth has been flushed from the Nikkei. The question now is whether we’ve seen enough of a cleanout or if there’s still more to come. While the chart provides some clues, traders should also keep an eye on the yen, where intervention risk remains elevated despite a fundamental backdrop that continues to favour USD/JPY upside.Washout Complete or More to Come?Source: TradingViewTuesday’s Nikkei sell-off was as brutal as it was necessary, flushing out speculative excess that had built up during the run to record highs. The focus now shifts to 68,782, the former record high from earlier this month. The level was tested once before and again on Tuesday, with the price briefly breaking below before snapping back into the close.Given the scale of the decline and leverage embedded in many Asian equity markets, the risk of margin calls and distress selling in early trade cannot be ignored. How the price behaves around 68,782 may offer an important clue as to whether the correction has run its course or has further to go.RSI (14) continues to show bearish divergence, with momentum making lower highs as the price pushed to fresh records. MACD also appears close to crossing below its signal line, albeit while remaining in positive territory. Together, they provide a pair of cautionary signals for bulls.If the price were to break decisively below 68,782, traders could consider establishing shorts with a very tight stop above for protection, targeting 67,000 initially, followed by 65,900 and potentially the uptrend from late March, which currently sits a little above 65,000.Conversely, if 68,782 continues to repel bearish probes, traders could consider establishing longs above the level with a very tight stop below, targeting a retest of the record high at 73,520.Of the two, the short side looks more attractive from a tactical perspective, given the magnitude of the recent advance and the warning signs from momentum. However, the broader bullish trend remains intact. The uptrend has not been broken, and the key medium and longer-term moving averages continue to point higher. The Yen WildcardA downside risk for the Nikkei today, beyond forced selling and an extension of Tuesday’s unwind, is a rapid strengthening in the yen sparked by intervention.Japan’s Finance Minister Katayama revealed she held discussions with US Treasury Secretary Scott Bessent earlier this week, the latest in what feels like a constant stream of communication between Japanese and US officials.Markets have seen this movie before. Earlier this year, similar discussions took place before authorities stepped into the currency market. That’s not to say intervention is imminent, but it helps explain why traders remain alert to the possibility.However, whether we see intervention or not, the reality is that it goes completely against prevailing fundamentals. We’ve just seen a hawkish shift from the Federal Reserve, with nine of the 18 participants now signalling that rates are likely to finish the year higher than where they are today. At the same time, US economic outperformance continues.And in Japan, the BOJ’s preferred measures of underlying price pressures softened in May, with inflation excluding fresh food and energy easing to 2.1%, the lowest level since August last year.While we’ll hear from Governor Ueda, Deputy Governor Himino, and receive the Summary of Opinions from the June meeting over the next 24 hours, it’s difficult to see them saying anything that fundamentally alters the picture.That’s why I’m sceptical that intervention will achieve much beyond slowing the pace of USD/JPY’s advance, as we saw earlier this year. It didn’t halt the move higher. It only slowed it temporarily before the underlying fundamentals reasserted themselves. If anything, it merely provides better entry levels for bulls.Bullish Trend Intact, but Caution Is WarrantedSource: TradingViewUSD/JPY finds itself sitting in a structure that resembles an ascending triangle on the four-hour chart, with moves above 161.80 capped, protecting the 2024 high. At the same time, the uptrend has now been tested on three separate occasions and held on every occasion, making it the level of focus we should see any dips during Wednesday’s session.While USD/JPY remains in a strong uptrend, there are a few warning signs coming through from the oscillators. RSI (14) continues to show bearish divergence, with the indicator setting lower highs while the price sets higher highs. MACD has also rolled below the signal line, albeit while remaining in positive territory. So you’ve got two cautionary signals for bulls.On the topside, 161.80 has been a tough nut to crack in recent times. That’s going to be the focal point ahead of 161.95, the 2024 high. A break above that level would take USD/JPY to levels not seen since 1986.On the downside, the uptrend running from the low established on June 18 remains the immediate focus. Beyond that, 160.72, the high set back in April, is the next level of note, followed by 160.50. The longer-running uptrend from the middle of May is located almost exactly at that point, making it an important area for bulls to defend.It goes without saying that if we do see intervention from the Bank of Japan on behalf of the Ministry of Finance on the scale witnessed in late April and early May, those levels will likely be decimated quickly. In that scenario, downside levels of note include 159.38, 159.11, 158.00 and 157.30.Original Post