By Ankur Banerjee

SINGAPORE (Reuters) - The yen slipped to a fresh three-week low on Tuesday as traders pondered the Bank of Japan's steps last week to tweak its yield curve control policy, while the Australian dollar was soft ahead of the Reserve Bank of Australia's policy decision.

The yen has been on a wild ride since Friday, when the BOJ took another step toward a slow shift away from decades of massive monetary stimulus, saying it would offer to buy 10-year Japanese government bonds at 1.0% in fixed-rate operations, instead of the previous rate of 0.5%.

The Asian currency touched a low of 142.80 per dollar. It was last at 142.66 per dollar, down 0.26%. Japan's benchmark 10-year government bond yield surged on Monday to a nine-year high, leading the central bank to conduct additional purchase operations to cap its rise.

"Markets could test just how 'flexible' the BOJ will be in the months ahead," said Carlos Casanova, senior Asia economist at UBP in Hong Kong, in a note, adding the subtle changes suggest that the BOJ may be gearing up to changing the YCC target in 2023.

"As the new line in the sand is 1%, it would make sense to broaden the YCC band by this level."

Investor attention during Asian hours will be on the policy decision from the Reserve Bank of Australia.

Markets generally expect policymakers to hold rates steady but a slim majority of economists favour a hike, arguing that inflation is likely to remain sticky for quite some time. The Australian dollar eased 0.06% to $0.672, having risen 0.8% in July.

Commonwealth Bank of Australia (OTC:CMWAY) strategist Kristina Clifton said the RBA decision is likely to be another close call, noting history shows that if the RBA hikes when they are not fully expected to then the Aussie can rise around 0.8%.

"However, we expect any post RBA strength in Aussie to be short lived given the weak global economic outlook." 

Meanwhile, Federal Reserve survey data released on Monday showed U.S. banks reported tighter credit standards and weaker loan demand from both businesses and consumers during the second quarter.

The Fed's quarterly Senior Loan Officer Opinion Survey, or SLOOS, also showed that banks expect to further tighten standards over the rest of 2023, adding to further evidence that rising interest rates are having an impact on the economy.

Tight lending standards can amplify the effects of rising interest rates and contribute to a U.S. recession later this year, CBA's Clifton said.

Against a basket of currencies, the dollar rose 0.059% at 101.93, flirting with a fresh three-week peak. The index fell 1% in July.

Meanwhile, Sterling was last at $1.2827, down 0.08% on the day, having gained 1.1% in July. Bank of England's policy meeting on Thursday is in the spotlight, with markets evenly divided between a 25- and 50-basis-point increase.

The euro was down 0.06% at $1.0986, while the kiwi eased 0.14% to $0.620.