The dollar is bleeding. It is a calculated sacrifice. Washington wants exports. Wall Street wants stability. They cannot have both. Rob Kaplan, Vice Chairman at Goldman Sachs, confirmed the quiet part out loud this week at the Global Macro Conference APAC. He questioned whether the short term gains of a weaker currency justify the structural rot of inflation. This is not a theoretical debate. It is a warning to every treasurer holding USD reserves.
The Kaplan Signal from Singapore
Kaplan’s rhetoric in Singapore marks a pivot in the institutional narrative. For years, the strong dollar was the bedrock of American hegemony. It allowed for cheap imports and funded the massive fiscal deficit. Now, the math is changing. As the Federal Reserve contemplates its next move, the shadow of Japanese rate volatility looms over the Pacific. Per recent reports from Bloomberg, the Bank of Japan is finally losing its grip on the bond market. This is the catalyst Kaplan is watching. When the yen moves, the world shakes.
The technical mechanism is simple but devastating. For decades, investors used the yen as a funding currency. They borrowed at zero percent to buy high yielding American assets. This carry trade is now unwinding. As Japanese rates rise, that capital is flowing back to Tokyo. This creates a supply glut of dollars. The result is a currency in freefall, regardless of what the Fed says at its next press conference. Kaplan’s focus on export gains is a distraction from the real issue: the loss of dollar dominance in the APAC region.
Comparative Market Indicators February 1 2026
The following table outlines the divergence between the US and Japanese markets as of this morning. The narrowing yield gap is the primary driver of the current currency correction.
| Market Indicator | January 2026 Average | February 1 2026 Spot | Change (%) |
|---|---|---|---|
| USD/JPY Exchange Rate | 148.20 | 142.50 | -3.85% |
| US 10-Year Treasury Yield | 4.15% | 4.05% | -2.41% |
| Japan 10-Year JGB Yield | 0.85% | 1.12% | +31.76% |
| Fed Funds Target Rate | 4.75% | 4.75% | 0.00% |
The Myth of Export Gains
Politicians love a weak currency. It makes domestic goods look cheap on the global stage. But this is a J-Curve trap. In the short term, the trade balance actually worsens. The cost of essential imports, like energy and raw materials, spikes immediately. Exports take months to adjust. Kaplan’s skepticism is rooted in this delay. If the dollar stays weak through the first half of the year, the inflationary pressure on the American consumer will be relentless. According to data tracked by Reuters, import price indices have already ticked up 1.4 percent in the last 48 hours alone.
The volatility in Japanese rates is the secondary fuse. The Bank of Japan has spent trillions defending its yield curve. That defense is over. As JGB yields climb toward 1.2 percent, the incentive to hold US Treasuries vanishes. This is not just a currency play. It is a liquidity crisis in the making. If Japanese institutional investors, the largest foreign holders of US debt, continue to repatriate their cash, the Fed will be forced to step in as the buyer of last resort. That is quantitative easing by another name. It is the ultimate recipe for a devalued dollar.
Visualizing the USD/JPY Volatility
The chart below illustrates the aggressive appreciation of the Yen against the Dollar over the final days of January, culminating in the current market position.
The Path Ahead
The market is mispricing the risk of a disorderly unwind. Kaplan’s comments suggest that Goldman is positioning for a period of sustained dollar weakness that the Fed may be powerless to stop. If the Bank of Japan raises rates again in their mid February meeting, the floor for USD/JPY could fall to 135.00. This would trigger a massive rebalancing of global portfolios. Investors should stop looking at the Fed’s dot plot and start looking at the capital flows out of Tokyo. The export gains will be a footnote compared to the carnage in the bond market.
Watch the February 11 Bank of Japan policy review. If the policy rate moves to 0.50 percent, the dollar sacrifice will move from a strategic choice to an unavoidable catastrophe.
