The market is the judge in the market-driven economy. For instance, the stock market tells -- through prices formed by the collective will of investors -- where the real economy stands. Although this fact is self-evident, it is often forgotten or misunderstood. The current slump in the Tokyo stock market, at a time when the economy is finally picking up, provides food for thought.
The market -- investors collectively -- has plenty of information about the economy. To be sure, the market often overreacts, temporarily pushing prices to unrealistic levels. But, by and large, it behaves realistically, precisely because it is well-informed. Its general condition, for better or worse, is in itself a message that needs to be taken seriously.
When the bubble economy collapsed a decade ago, many Japanese, including policymakers, could not understand why the boom went bust so quickly. With hindsight, they were complacent, oblivious to the approaching crisis. We must not repeat the mistake of being unable to see the forest for the trees.