Strange strategy with COALESCE?

I get unexpected query strategy when using coalesce.

Good:
-----

explain update zzz set
b = (select x.newVal from zzz_xref x where x.oldVal = zzz.b);
NOTICE: QUERY PLAN:

Seq Scan on zzz (cost=0.00..20.00 rows=1000 width=10)
SubPlan
-> Index Scan using zzz_xref_ix2 on zzz_xref x (cost=0.00..726.82
rows=983 width=4)

Bad (just by adding a COALESCE call):
-------------------------------------

explain update zzz set
b = coalesce((select x.newVal from zzz_xref x where x.oldVal =
zzz.b),b);
NOTICE: QUERY PLAN:

Seq Scan on zzz (cost=0.00..20.00 rows=1000 width=10)
SubPlan
-> Index Scan using zzz_xref_ix2 on zzz_xref x (cost=0.00..726.82
rows=983 width=4)
-> Seq Scan on zzz_xref x (cost=0.00..1757.80 rows=98304 width=4)

Does this make sense?

P.S. There are indexes on both oldVal and newVal in zzz_xref, and table zzz
has one column (b).

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