The dollar is slipping. Wall Street sees a catalyst for exports. They are missing the structural rot. Rob Kaplan, Vice Chairman at Goldman Sachs, signaled a warning this week in Hong Kong. He questioned the true value of a weaker greenback. The gains are fleeting. The inflationary costs are permanent. Speaking at the Goldman Sachs Global Macro Conference APAC, Kaplan dismantled the consensus view that a devalued currency is a panacea for American industry. It is a trap.
The Export Trap and the Inflationary Feedback Loop
Currency devaluation is a race to the bottom. It provides a temporary sugar high for exporters. Their goods become cheaper abroad. Orders surge. This is the surface narrative. Beneath it, the mechanics of global supply chains tell a different story. Most American manufacturers rely on imported raw materials. A weaker dollar makes these inputs more expensive. The cost of production rises. Profit margins eventually collapse. This is the feedback loop that markets ignore until it is too late.
Per the latest Bloomberg currency desk data, the Dollar Index has shed 3 percent in the last fortnight. This movement is not happening in a vacuum. It is a reaction to shifting expectations of US monetary policy. If the Federal Reserve pauses while other central banks tighten, the dollar loses its yield advantage. Kaplan’s skepticism centers on the trade-off. Is the marginal increase in export volume worth the erosion of domestic purchasing power? History suggests it is not. A weak currency is often a symptom of a weak economy, not a tool for its recovery.
The Japanese Contagion and the Carry Trade Collapse
Volatility is back in Tokyo. The Bank of Japan is finally moving away from its decade-long experiment with yield curve control. This has sent shockwaves through the APAC region. Japanese rates are rising. This is not just a local issue. It is a global liquidity event. For years, investors borrowed yen at zero interest to buy higher-yielding US assets. This is the carry trade. As Japanese rates climb, that trade becomes a liability. Investors must sell their US positions to pay back their yen loans. This creates a massive, forced liquidation of dollar-denominated assets.
According to Reuters currency market reports, the yen has seen its most volatile 48-hour window since the previous autumn. This volatility is a warning sign. It indicates that the global financial system is struggling to adjust to a world without cheap Japanese capital. Kaplan noted that this turbulence complicates the Fed’s path. If the dollar weakens too quickly due to the carry trade unwinding, it could force the Fed to keep rates higher for longer to prevent an inflationary spike. The central bank is trapped between supporting growth and defending the currency.
Volatility Index of Major Currency Pairs January 2026
The Technical Mechanics of Monetary Divergence
Monetary policy is diverging. The Fed is looking for an exit strategy from its restrictive stance. The Bank of Japan is entering a tightening cycle. This divergence creates a vacuum in the foreign exchange markets. When the world’s reserve currency loses its footing, the cost of servicing dollar-denominated debt globally increases in real terms for those holding the currency. This is the paradox. A weaker dollar should help debtors, but the volatility associated with its decline often triggers a tightening of financial conditions that offsets any benefit.
Institutional flows are already shifting. Recent US Treasury yield data shows a flattening of the curve. Long-term investors are hedging against a period of stagflation. They fear a scenario where the dollar continues to slide while inflation remains sticky. This is Kaplan’s nightmare. If the Fed cannot rely on a strong dollar to keep import prices down, it loses its primary tool for controlling the Consumer Price Index. The market is currently pricing in a soft landing, but the currency markets are signaling a much rougher descent.
The Real Cost of Volatility
Volatility is not just a number on a screen. It has real-world consequences for corporate planning. When the USD/JPY pair swings 2 percent in a single session, multinational corporations cannot hedge their exposure effectively. The cost of insurance against currency swings has doubled in the last week. This is a tax on global trade. It reduces the capital available for investment and expansion. Kaplan’s address to the APAC conference was a reminder that stability is more valuable than a cheap currency. The pursuit of export gains via devaluation is a strategy of diminishing returns.
We are entering a phase of structural realignment. The era of the dominant, stable dollar is being tested by geopolitical shifts and domestic fiscal imbalances. The market is fixated on the next Fed meeting, but the real story is the tectonic shift in the APAC region. Japan is no longer the world’s anchor of low rates. As that anchor lifts, the dollar is left drifting. Investors who are betting on a simple export-led recovery are ignoring the complexity of the global financial plumbing. The pipes are starting to leak.
Watch the February 13, 2026, Treasury International Capital (TIC) report. This data will reveal if foreign central banks are accelerating their divestment from US debt. If the net outflow exceeds 50 billion dollars, the current slide in the greenback will transform from a controlled descent into a full-scale rout.
