You have it backwards.

SE (me) on a J fare, standing by for an earlier flight, did not get the seat because a P25K was upgrading a G fare.

I see the logic where you want someone on a Y fare to have priority for that flight's J cabin than someone booked on a different flight, but it becomes less clear when you have highest status on highest fare losing out over someone with lowest status and lowest (upgradeable) fare.

As for the point about captains, they ALWAYS get J when deadheading. Period. That's not standby/upgrade/whatever. They are booked into J.

AC staff can book J, book Y and upgrade, or stand by. The same as you can (okay - a little different). Captains book J when deadheading.