The greenback is stumbling.
It is a controlled slide that masks a deeper structural rot in global liquidity. For decades, the mantra of the American exporter has been simple. A weaker dollar makes our goods cheaper. It boosts the trade balance. It revives the Rust Belt. But as Rob Kaplan, Vice Chairman at Goldman Sachs, recently noted at the Global Macro Conference APAC, this logic is dangerously antiquated. The short term gains in export competitiveness are increasingly offset by the violent volatility of a global financial system that no longer has a stable anchor.
The Kaplan Critique and the J-Curve Mirage
Currency devaluation is a double edged sword. The traditional economic model suggests a J-Curve effect. Initially, a weaker currency worsens the trade balance because the cost of imports rises immediately. Only later, after contracts are renegotiated, do export volumes increase enough to compensate. However, in 2026, the global supply chain is too integrated for this to work cleanly. Most American manufacturers rely on imported components. When the dollar drops, their input costs spike. The competitive advantage is inflated away before the first shipment even leaves the dock.
Kaplan’s intervention from the APAC conference highlights a shift in institutional thinking. Goldman Sachs is no longer looking at the dollar in a vacuum. They are looking at the carry trade. They are looking at the fragility of the Japanese Yen. According to Bloomberg market data, the correlation between USD/JPY volatility and US Treasury yields has reached a three year high. When the dollar weakens, it isn’t just a trade story. It is a liquidation story.
The Japanese Catalyst
Japan is the ghost in the machine. Recent Japanese rates volatility has sent shockwaves through the Pacific. For years, the Yen was the world’s favorite funding currency. You borrowed in Yen at zero percent and bought everything else. Now, the Bank of Japan is finally tightening. This has created a feedback loop. As the Yen strengthens, the massive carry trade unwinds. Investors are forced to sell dollar denominated assets to cover their Yen liabilities. This isn’t a gradual adjustment. It is a margin call on the global economy.
Per Reuters reporting on central bank policy, the Bank of Japan’s recent hawkish tilt has stripped the dollar of its primary support pillar. Without the Yen carry trade providing a constant bid for US assets, the dollar is left to trade on its own deteriorating fundamentals. The fiscal deficit is widening. The interest burden is staggering. The dollar is losing its status as the default safe haven because the safe haven is becoming too expensive to maintain.
Visualizing the Decline
The following data represents the US Dollar Index (DXY) performance over the first week of February. The trend is unmistakably bearish. The market is pricing in a reality that the Federal Reserve has yet to fully acknowledge.
US Dollar Index (DXY) Performance: February 1 to February 7, 2026
The Cost of Hegemony
A weaker dollar is an inflationary tax on the American consumer. It is that simple. When the dollar loses purchasing power, the price of everything from crude oil to consumer electronics rises. This puts the Federal Reserve in an impossible position. If they hike rates to save the dollar, they crush the domestic economy. If they cut rates to support growth, they accelerate the dollar’s demise. Kaplan’s skepticism regarding short term export gains is rooted in this macro reality. You cannot export your way out of a currency crisis when your entire financial system is built on the dollar’s strength.
| Currency Pair | Weekly Change (%) | Volatility Index (VIX-Equivalent) | Sentiment |
|---|---|---|---|
| USD/JPY | -2.4% | 18.5 | Bearish |
| EUR/USD | +1.1% | 12.2 | Neutral |
| GBP/USD | +0.8% | 14.1 | Cautious |
| DXY Index | -1.56% | 15.8 | Bearish |
The volatility in the APAC region is a precursor to a broader shift. The Japanese Yen is no longer a passive observer. It is now an active disruptor. As the Bank of Japan moves toward a 1.0% policy rate, the gravitational pull on global capital will intensify. The dollar is no longer the only game in town. The diversification of global reserves is moving from a theoretical risk to a market reality.
The next critical data point arrives on February 13. The US Consumer Price Index (CPI) report will determine if the dollar’s slide is a healthy correction or the start of a systemic rout. If inflation remains sticky while the dollar weakens, the Fed’s ‘soft landing’ narrative will vanish. Watch the 100.5 level on the DXY. If that breaks, the floor falls out.
