Asia FX: The Great Unwind – When the Tides Turn on the Dollar’s Empire

For a generation, Asia's economic engine ran on a simple loop: export to the U.S., recycle the surplus into Treasuries and Wall Street paper, and ride the tailwinds of American growth. But now, that loop is fraying, snapping like over-leveraged carry trades caught in a crosscurrent. Trump’s second-term policy blitz—tariffs, tax cuts, and transactional diplomacy—has transformed the calm reservoir of U.S. financial markets into a turbulent whirlpool.

This isn’t just portfolio rebalancing. This is tectonic. We’re watching the long arc of post-WWII capital alignment shift in real time. Asia’s $5 to $7 trillion bet on U.S. assets is starting to unspool—not in panic, but with cold calculation.

The catalyst? Not just tariffs, though they’ve rattled cages from Taiex to KOSPI. It’s the creeping realization that U.S. assets no longer provide the same refuge. Taiwanese insurers posted a $620 million hit in April. A two-day, 8.5% surge in the Taiwan dollar blindsided markets and put $18 billion in unhedged Treasury exposure at risk. Japan’s Nippon Life, long a pillar of U.S. sovereign demand, is now shopping for alternatives in Canberra and Frankfurt.

If the 1997 Asian Financial Crisis forced Asia to bow to dollar dominance, this moment marks its slow rebellion. What began as whispers around reserve management desks is becoming a broad rethinking. From Tokyo’s megabanks to family offices in Jakarta, the mood is shifting from yield-hunting to risk-hedging.

Trump’s tariffs and currency jawboning have pulled the curtain back. FX clauses in trade pacts are no longer off the table. The Taiwan dollar’s rip higher was a warning shot; the won's surge, a confirmation. These aren’t aberrations. They’re the kindling for a wider FX repricing.

The carry trade, long the duct tape of global yield engineering, is breaking apart. BOJ policy normalization torched $1.1 trillion in positions. The yen ripped 14% in a month. Speculators scrambled, covering shorts, triggering a cascade from Tokyo banks to Bitcoin. This is what happens when a one-way street becomes a trap door.

Even the once-invincible Treasury market isn’t immune. China and Japan still hold $1.7 trillion, but the flows are turning. Chinese selling accelerated in March. Japanese insurers are pulling back. With U.S. fiscal policy looking more like a frat party than a budget plan, the risk premium is bleeding into the term structure.

Asia’s dollar holdings aren’t just shrinking—they’re being reimagined. Gold is back on the radar. Crypto is flirting with legitimacy. Indian equities, Japanese stocks, Aussie debt—these are no longer exotic alternatives; they’re Plan A.

But this isn’t a smooth rotation. It’s a lurch. The market isn’t pricing in an orderly unwind of dollar dominance. It’s dancing on a fault line, mistaking quiescence for stability. If the Asian capital exodus gains pace, we’re looking at a realignment that could remake cross-asset correlations. EUR, JPY, AUD—all could be recast as new shelters in the storm.

The macro flows are tilting. Asia ran a $900 billion current-account surplus last year. That’s dry powder. Historically, it would’ve looped back into Treasuries. Now? It’s being funneled closer to home.

This is no longer a story about what Trump did last week. This is the slow-motion fade of American exceptionalism in the eyes of its largest creditors. For FX traders, it’s a new regime. Dollar strength is no longer reflexive—it’s contested. And for those still betting on the old rules? Check your exposure. The capital tide is turning, and it’s not waiting for confirmation.

Below is my Weekender. In my week ahead note, I set the table for a double down on Asia FX. Looks like that view is becoming a media thematic darling today.