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 Suica Apple Pay, 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 Suica Apple Pay balance. Nice.