TOKYO, Jan 22 (Reuters) - The banking unit of Japan's Mitsubishi UFJ Financial Group Inc said on Friday it would introduce maintenance fees on dormant accounts from July, in a fee system overhaul to ride out the impact of profit decline.

MUFG Bank, the country's largest lender, said in a statement it will charge an annual fee of 1,320 yen ($12.74), including tax for new accounts in which transactions have not been made for two years since they are opened.

The move comes as Japanese banks have been grappling with years of low-rate environment and a slowly declining domestic market, and as the COVID-19 pandemic adds to their long-term uncertainty.

"By charging the new fee, we will prevent fraudulent accounts to be opened and used, and will provide a safe and high-quality financial service," the bank said.

Other Japanese lenders have also worked on a fee system reform.

Banks in Japan are seeking to transform their operations by overhauling their branch networks and promoting digitalisation amid ultra-low interest rates.

In an aim to push customers towards the online service, Mizuho Financial Group Inc earlier this week started charging a part of new customers 1,100 yen for issuing an old-fashioned paper passbook. This was soon followed by Sumitomo Mitsui Financial Group Inc, the country's No.2 lender, who plans to charge some of the new customers 550 yen a year, starting April.

Unlike a bank statement in Western countries, paper passbooks in Japan have long been provided free for customers when they open an account.

Resona Holdings Inc, Japan's fourth-largest lender by assets, has had a fee since 2004 on accounts in which no transactions have been made for more than two years holding less than 10,000 yen. The Japanese bank charges 1,320 yen a year.

($1 = 103.5900 yen) (Reporting by Takashi Umekawa; Editing by Sherry Jacob-Phillips)