By Makiko Yamazaki
TOKYO (Reuters) - Japan's top banks said on Tuesday they would raise interest rates on ordinary yen deposits for the first time in 17 years after the Bank of Japan ended eight years of its unorthodox negative interest rate policy.
The planned hikes by the main banking arms of Mitsubishi UFJ (NYSE:MUFG) Financial Group , Sumitomo Mitsui (NYSE:SMFG) Financial Group and Mizuho Financial Group mark a key inflection point as Japan's economy overcomes years of deflation.
The BOJ on Thursday ditched its negative rate policy, where the central bank applied a -0.1% interest rate on a small pool of excess reserves parked with it by financial institutions.
It set the overnight call rate as its new policy rate and decided to guide it in a range of 0-0.1% partly by paying 0.1% interest to deposits at the central bank.
In response to the shift, MUFG Bank and Sumitomo Mitsui Banking Corp separately said they would lift interest rates on ordinary yen deposits from 0.001% now to 0.02%, a level last seen in 2016.
Both would be the first such increases since February 2007.
Mizuho and No. 4 banking group Resona Holdings also said they planned to raise interest rates on ordinary deposits.
The latest policy shift would help widen the spread between deposit and lending rates, boosting Japanese banks' net interest income after years of being squeezed by rock-bottom rates.
"The end to the negative rate policy is positive for the banking group's business as it helps improve our interest income," Masahiro Kihara, the president and CEO of Mizuho, said in a statement.
"The importance of keeping deposits as a funding source of our businesses is growing bigger," he added.
Major Japanese banks raised interest rates on long-term deposits late last year after the central bank loosened its grip on long-term interest rates in October. It was their first long-term rate hike since 2011.