(March 19): Japanese banks will start earning billions of yen in interest on their deposits with the Bank of Japan (BOJ) after it scrapped negative rates.

Major banks, including Mitsubishi UFJ Financial Group Inc and other top lenders, have ¥106.7 trillion (US$712 billion or RM3.36 trillion) in reserves that are currently paying no interest, according to BOJ data.

They have another ¥79.4 trillion on deposit that is earning 0.1%. In announcing the end of its negative interest rate policy on Tuesday, the BOJ said it will pay 0.1% interest to current account balances, excluding required reserves.

The new interest rate will apply from March 21, the central bank said. While banks have the opportunity to earn interest, they are likely to deploy the cash to where there are better returns.

They will likely shift their current account balances at the BOJ to government bonds as yields rise, according to Hideyasu Ban, a senior analyst at Bloomberg Intelligence.

“Banks with higher weights in domestic interest-earnings assets and/or cash sitting at the BOJ will have higher earnings sensitivity to domestic rate rises,” Ban wrote in a report. The Topix Banks Index traded about 0.2% lower after the BOJ decision.