The greenback is losing its grip.
Institutional desks are dumping the dollar. The narrative of American exceptionalism is hitting a wall of reality. Rob Kaplan, Goldman Sachs vice chairman, signaled a shift in the consensus during the recent Global Macro Conference APAC. He questioned whether the marginal gains in exports are worth the systemic instability of a depreciating currency. The market is currently grappling with the fallout from Japanese rate volatility. The carry trade is not just unwinding. It is imploding.
The mechanics of this shift are rooted in interest rate differentials. For years, the yen served as the world’s cheap funding source. Investors borrowed at zero to chase yield in Treasuries. That era ended when the Bank of Japan (BoJ) finally abandoned its yield curve control. According to recent reports from Bloomberg, the volatility in Japanese rates has sent shockwaves through the G10 currency space. When the BoJ moves, the world feels the friction. This friction is now manifesting as a sharp correction in the US Dollar Index (DXY).
The Export Fallacy and Monetary Friction
Politicians love a weak currency. They claim it makes domestic goods cheaper abroad. This is a surface level observation. In a globalized supply chain, a weaker dollar raises the cost of intermediate inputs. Manufacturers who import raw materials find their margins squeezed. The supposed ‘export gain’ is often offset by the rising cost of production. Kaplan’s skepticism reflects a growing concern among the banking elite that the US is importing inflation through the back door. If the dollar continues to slide, the Federal Reserve’s fight against price increases becomes significantly more difficult.
Capital flows are reversing. The ‘higher for longer’ mantra from the Fed is being tested by deteriorating fiscal data. Foreign central banks are no longer the reliable buyers of US debt they once were. As the supply of Treasuries increases to fund the deficit, the lack of private demand puts upward pressure on yields while simultaneously weakening the currency. This is the ‘Dollar Trap.’ It is a feedback loop where higher yields fail to attract capital because the underlying currency risk is too high.
Visualizing the February Currency Shift
The following data represents the performance of the US Dollar Index (DXY) over the first ten days of February. The decline reflects the market’s reaction to the BoJ’s hawkish stance and the cooling US labor market data.
Systemic Volatility in the APAC Region
The Japanese rate volatility mentioned by Kaplan is the primary catalyst for the current dollar weakness. When the BoJ allows rates to rise, the spread between the USD and JPY narrows. This triggers a massive repatriation of Japanese capital. Japanese institutional investors hold trillions in US assets. If they decide that the risk-adjusted return at home is better, the liquidation of US positions will be relentless. We are seeing the early stages of this migration. The volatility is not a bug; it is a feature of a world re-pricing risk after a decade of artificial liquidity.
Per analysis from Reuters, the APAC macro conference highlighted that the ‘short-term export gains’ are a dangerous distraction. The real story is the structural shift in global reserves. Central banks are diversifying away from the dollar at the fastest pace in thirty years. This is not just a geopolitical move. It is a mathematical necessity. If the US cannot maintain a stable currency, it cannot maintain its status as the global reserve issuer.
Comparative Currency Performance Q1 2026
The table below outlines the performance of major currency pairs against the US Dollar as of February 10. The strength of the Yen and the Euro highlights the coordinated pressure on the greenback.
| Currency Pair | Opening Price (Jan 1) | Current Price (Feb 10) | % Change | Volatility Index |
|---|---|---|---|---|
| USD/JPY | 145.20 | 138.45 | -4.65% | High |
| EUR/USD | 1.0850 | 1.1120 | +2.49% | Medium |
| GBP/USD | 1.2640 | 1.2890 | +1.98% | Medium |
| AUD/USD | 0.6720 | 0.6895 | +2.60% | High |
The data is clear. The dollar is under siege from multiple fronts. The Japanese rate hike was the spark, but the fuel is the US fiscal trajectory. Investors are beginning to price in a ‘hard landing’ scenario where the Fed is forced to cut rates aggressively while inflation remains sticky. This stagflationary environment is the worst-case scenario for the dollar. It erodes purchasing power while simultaneously reducing the yield advantage that has supported the currency for the last three years.
The Liquidity Squeeze and Corporate Debt
Corporate America is not prepared for a volatile dollar. Many large-cap firms have hedged their currency exposure based on the assumption of a stable or strengthening greenback. A sudden 5% or 10% drop in the DXY creates massive mark-to-market losses on these hedges. Furthermore, the cost of servicing dollar-denominated debt for emerging markets becomes a secondary concern compared to the primary threat: a collapse in global liquidity. As the carry trade unwinds, liquidity is sucked out of the system. This creates a ‘vacuum effect’ where even high-quality assets see their prices drop due to a lack of buyers.
The Goldman Sachs APAC conference served as a warning. Rob Kaplan’s comments were not directed at retail investors; they were a signal to the C-suite. The era of predictable currency markets is over. The volatility in Japan is a precursor to a broader realignment of global capital. Those who are positioned solely for export gains are missing the forest for the trees. The real risk is a systemic loss of confidence in the dollar’s role as a stable store of value.
Watch the upcoming Bank of Japan policy meeting on March 18. If the BoJ signals another 25-basis point hike, the USD/JPY pair will likely break below the 135 level. This would trigger a second wave of liquidations in the US Treasury market. The focus must remain on the 10-year Treasury yield. If it falls below 3.8% while the dollar is simultaneously weakening, the ‘Dollar Trap’ will be fully sprung.
