When you purchase a physical Suica card from a JR East station ticket machine, the minimum purchase price is ¥1,000. ¥500 goes to the Suica ‘card deposit’, the remaining ¥500 goes into the Suica card SF (Stored Fare) balance. When you add a physical Suica card into Apple Pay, iPhone 7 reads and transfers the SF balance into Apple Pay Suica, your plastic Suica card is no longer usable.
What happened to the ¥500 Suica card deposit? Thanks to Japanese twitter users we now have an answer: when your Suica Apple Pay balance runs down to zero, JR East automatically refunds your ¥500 physical card deposit, charging your Apple Pay Suica balance. Nice.
Update 11/1/2017: When adding plastic Suica to Apple Pay the JR East Mobile Suica system now automatically refunds the ¥500 deposit into your Suica card balance (SF).