The greenback is bleeding. Rob Kaplan knows why. The Goldman Sachs Vice Chairman and former Dallas Fed President recently stood on a stage in Hong Kong and dismantled the primary delusion of American trade policy. He argued that the stability of the US dollar now trumps any marginal gains in export competitiveness. This is not a theoretical debate. It is a survival strategy for a nation buried under 39 trillion dollars of debt. When your liabilities are that vast, a devaluing currency is not a tool. It is a liability.
The Mirage of Export Competitiveness
Mainstream narratives celebrate a weaker dollar. They claim it makes American goods cheaper abroad. This is a shallow reading of a complex machine. Kaplan’s intervention at the Goldman Sachs Global Macro Conference APAC highlighted a brutal reality. The US is no longer a manufacturing-first economy that can devalue its way to prosperity. It is a debt-servicing economy. A volatile or depreciating dollar threatens the very mechanism that funds the federal deficit. If global investors lose faith in the dollar as a stable store of value, the cost of rolling over that 39 trillion dollars will explode.
The bond market is already reacting. On February 13, the yield on the 10-year Treasury note fell to 4.05 percent. This is the lowest level since November. The 2-year yield slid to 3.41 percent. Markets are aggressively pricing in a Federal Reserve that is forced to cut rates to prevent a hard landing. Per the latest CPI data, inflation is cooling faster than the hawks anticipated. January’s consumer price index rose just 0.2 percent. Core inflation is at its lowest since 2021. The Fed is boxed in. It must cut to save the labor market, but every cut weakens the dollar’s yield advantage.
The Japanese Volatility Engine
Japan is the second half of this pincer move. For decades, the yen carry trade was the world’s most reliable ATM. You borrowed yen at zero percent and bought everything else. That trade is dying. The Bank of Japan (BoJ) has moved its short-term rate to 0.75 percent. This is the highest level since 1995. The volatility is staggering. USD/JPY is currently hovering around 153.08, but the floor is falling out. Prime Minister Sanae Takaichi, despite her pro-stimulus reputation, appears to be tolerating this tightening. Her economic adviser, Etsuro Honda, suggested that a hike to 1.0 percent is within her expectations.
Central Bank Policy Divergence
Policy Rate Divergence: US Federal Reserve vs Bank of Japan (February 2026)
The spread is narrowing. As the Fed prepares to slash and the BoJ prepares to hike, the yield differential that supported the dollar is evaporating. This is the ‘Japanese Volatility’ Kaplan warned about. It is not just about exchange rates. It is about the repatriation of capital. Japanese investors hold over 1.1 trillion dollars in US Treasuries. If domestic yields in Tokyo become attractive, that money flows home. The result is a forced liquidation of US debt at a time when the Treasury is already struggling to find buyers. According to Wolf Street, the US government sold 701 billion dollars of securities this week alone. The math is becoming brutal.
The Yield Curve Recession Signal
Recession fears are no longer whispers. They are data points. The 10-year/3-month Treasury yield spread recently flipped from negative to positive. This is the ‘un-inversion.’ Historically, this is the most dangerous signal in macroeconomics. A recession rarely starts when the curve is inverted. It starts when the curve steepens back to normal. This indicates the market believes the Fed has stayed restrictive for too long and is now in emergency mode. The labor market is stagnating. Job openings have dropped to post-pandemic lows. Consumer spending is exhausted. The ‘soft landing’ narrative is a fairy tale for the credulous.
Key Market Indicators
| Asset Class | Value (Feb 15, 2026) | Status |
|---|---|---|
| USD/JPY | 153.08 | Volatile |
| US 10-Year Yield | 4.05% | Declining |
| US 2-Year Yield | 3.41% | Declining |
| Gold (Spot) | $5,005.40 | Record High |
| Japan Policy Rate | 0.75% | Rising |
Gold is the ultimate barometer of this anxiety. It reclaimed the 5,000 dollar mark on February 13. This is not a typical bull market. It is a flight from fiat. Kaplan noted that institutional players are managing ‘tail risk’ by hedging the dollar and buying safe havens. They are not running away from the US yet, but they are building the exits. The innovation boom in AI and strong GDP growth in late 2025 provided a temporary shield, but that shield is cracking under the weight of interest expense and currency instability.
The Duration Challenge
The technical mechanism of this crisis is duration. The US Treasury must roll over massive amounts of short-term debt into longer-dated bonds. To do this, they need a stable dollar. If the currency is sliding, foreign buyers demand a higher ‘term premium’ to compensate for the FX risk. This pushes long-term rates up even if the Fed is cutting short-term rates. This ‘bear steepening’ is the nightmare scenario for the housing market. Mortgage rates are already sticky at 6.09 percent despite the drop in the Fed Funds rate. The transmission mechanism of monetary policy is broken.
Investors must look past the daily noise of the equity markets. The S&P 500 may be near all-time highs, but it is being held up by a handful of megacaps. Under the surface, the Russell 2000 is struggling and the bond market is screaming. The next major milestone is the March 19 Bank of Japan meeting. If Governor Kazuo Ueda signals a definitive move to 1.0 percent, the yen carry trade will enter its final liquidation phase. Watch the 150.25 level on USD/JPY. A break below that will trigger a cascading sell-off in dollar-denominated assets that no amount of Fed ‘insurance’ can stop.
