Could Bank of Japan's crazy gambit actually work?

The central bank is trying something new: negative interest rates

Will a negative interest rate help the Japanese economy?
(Image credit: YOSHIKAZU TSUNO/AFP/Getty Images)

The Japanese economy has been in the doldrums for about a decade and a half at this point. Back in 2012, Prime Minister Shinzo Abe rolled into office with a three-part plan of loose monetary policy, fiscal stimulus, and structural reform. But so far the results of "Abenomics" have been middling. So on Thursday, Japan's central bank decided to get unusually adventurous: They're gonna try negative interest rates.

To review: Interest rates are the price of lending and saving money. When interest rates throughout the economy are low, banks charge less for loans and individuals have less incentive to save; when they're high, lenders charge more and individuals save more. This is why central banks tighten interest rates when they're worried about inflation: Discouraging loans and encouraging individuals to sock their money away slows economic activity, which keeps inflation in check. Conversely, cutting interest rates in a recession encourages credit and consumption, which boosts job creation.

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Jeff Spross

Jeff Spross was the economics and business correspondent at TheWeek.com. He was previously a reporter at ThinkProgress.