The greenback is bleeding. Markets are reeling from the fallout of the Goldman Sachs APAC summit.
Liquidity is drying up. The Federal Reserve is boxed in. For months, the narrative focused on a soft landing and the resilience of the American consumer. That story is dead. The reality is a structural devaluation of the US Dollar that threatens to destabilize global trade. During the recent Goldman Sachs Global Macro Conference APAC, Rob Kaplan, the firm’s vice chairman, challenged the prevailing wisdom that a weaker currency provides a net benefit through export gains. He is right to be skeptical. The cost of imported inflation and the erosion of the dollar’s reserve status far outweigh the marginal benefits to Boeing or Caterpillar.
The mechanics of this shift are violent. As documented by Reuters, the spread between US Treasury yields and Japanese Government Bonds (JGBs) has collapsed to its narrowest margin in three years. This is not a mere statistical anomaly. It is the death knell for the carry trade. For a decade, investors borrowed yen at near-zero rates to buy high-yielding dollar assets. That trade is now unwinding in real-time. When the yen strengthens, the cost of servicing that debt explodes. Forced liquidations follow. We are seeing the beginning of a margin call on the global economy.
The Japanese Volatility Engine
Japanese rates are no longer a static baseline. They are a source of chaotic energy. The Bank of Japan has finally abandoned its yield curve control, allowing the 10-year JGB to float toward levels not seen in a generation. This shift has sent shockwaves through the APAC region. Investors who treated the yen as a bottomless well of cheap capital are now scrambling for the exits. The volatility Kaplan referenced is not a temporary spike. It is a regime change.
The following table illustrates the rapid shift in key macro indicators over the last 48 hours of trading leading into February 12.
| Indicator | February 10 Value | February 11 Value | February 12 (Current) |
|---|---|---|---|
| USD/JPY Exchange Rate | 135.40 | 133.10 | 132.25 |
| US 10-Year Treasury Yield | 3.85% | 3.72% | 3.68% |
| Japan 10-Year JGB Yield | 0.95% | 1.02% | 1.08% |
| Dollar Index (DXY) | 103.10 | 102.40 | 101.85 |
Visualizing the Dollar Decay
The decline of the DXY index over the current week reflects a broader loss of confidence in the Fed’s ability to maintain a restrictive stance while the domestic economy cools. The chart below tracks this descent.
DXY Index Volatility February 2026
The technical breakdown is clear. The DXY has breached its 200-day moving average with significant volume. According to analysis from Bloomberg, institutional desks are now hedging for a scenario where the dollar falls below the psychological 100 level. This is not just about trade balances. It is about the cost of capital. A weaker dollar makes US debt less attractive to foreign buyers. If the Treasury cannot find buyers for its massive issuance, yields must rise regardless of what the Fed wants. This is the fiscal dominance trap.
The Export Illusion
Rob Kaplan’s critique of export gains centers on the supply chain. Modern manufacturing is global. A weaker dollar makes American-made goods cheaper abroad, but it simultaneously drives up the cost of the raw materials and components required to build them. Most of these inputs are priced in dollars or sourced from regions where currencies are now appreciating against the greenback. The net margin improvement for US exporters is often negligible or negative once the full input cost is accounted for.
Furthermore, the Japanese rates volatility mentioned by Goldman Sachs creates a hedging nightmare. Companies cannot price long-term contracts when the underlying currency pair is moving 200 pips a day. This uncertainty acts as a tax on trade. It stifles investment. It encourages hoarding. The APAC region is currently the epicenter of this friction, as regional central banks struggle to decide whether to follow the BoJ’s lead or continue defending their own currencies against a volatile dollar. Per the latest data on Yahoo Finance, the volatility index for G10 currencies has reached its highest point since the 2023 banking jitters.
The focus now shifts to the upcoming US Treasury auction. If the bid-to-cover ratio falls below 2.2, expect a secondary wave of dollar selling. The market is no longer giving the Fed the benefit of the doubt. The next specific milestone to watch is the February 26 PCE inflation print. If that number shows any sign of stickiness while the dollar is falling, the Fed will be forced into a policy error that could define the rest of the decade. Watch the 101.20 level on the DXY. If it breaks, the floor is a long way down.
