Board Thread:Theories and Speculation/@comment-26118325-20150227103217/@comment-26302001-20150228120845

He actually did see chakra with it, he saw the chakra at Tsunade and her Anbu's feet, and he saw Naruto's normal and senjutsu chakra. I think it was just an error or plot defeat that Nagato didn't see through the smoke to see the Totsuka blade coming. He can clearly see chakra and even barriers.