Aug. 31 (Bloomberg) -- The yen gained for a second straight month versus the dollar as losses in U.S. subprime mortgages weakened global credit markets, prompting investors to sell risky assets funded by loans in Japan.

The Japanese currency also strengthened for a second month against the euro as traders sold asset-backed commercial paper. Federal Reserve Chairman Ben S. Bernanke today said the central bank will ``act as needed'' to limit damage to consumer spending and the economy. President George W. Bush pledged to help subprime borrowers while rejecting a bailout for ``speculators.''

``An effort to limit some of the worst downside risks isn't going to solve the big problems,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``It's back to the uncertainty of how much it eventually impacts the economy and what the Fed eventually has to do with cutting rates.''

The yen traded at 115.84 per dollar, from 115.86 yesterday, at 3:53 p.m. in New York. It has gained 2.4 percent versus the dollar this month after rising 3.8 percent in July. The euro bought 157.82 yen, from 157.87. The Japanese currency has gained 2.9 percent this month versus the euro, after an increase of 2.8 percent in July.

The yen has gained versus all 16 most actively traded currencies this month as traders bet investors would sell riskier assets and pay back loans in the yen used to buy them.

Japan's yen gained 11.3 percent versus the New Zealand dollar and 6.5 percent against the Australian dollar this month, two popular carry-trade currencies.

Carry Trade

In a carry trade, the investor makes money by borrowing in a country with low interest rates, such as Japan, converting the money to a currency where interest rates are higher, such as the U.S. or euro countries, and lending the money at that higher rate. The profit comes from the spread between the borrowing and lending rates; the risk is that exchange rates may change.

Japan's 0.5 percent target lending rate is the lowest among industrialized nations, helping push down the yen against 12 of the 16 major currencies over the past 12 months. The rate compares with 5.25 percent in the U.S., 4 percent in the euro region, 6.5 percent in Australia and 8.25 percent in New Zealand.

The value of outstanding U.S. commercial paper -- corporate debt that comes due in nine months or less -- has fallen by $244.1 billion to $1.98 trillion in the three weeks ended Aug. 29, according to the Fed.

Yields on three-month Treasury bills have fallen 84 basis points to 4.11 percent since July 31 as investors balked at buying commercial paper. A basis point is 0.01 percentage point.

`Additional Actions'

Bernanke said the Fed stands ready to take ``additional actions as needed'' to provide liquidity, in a speech today on housing and monetary policy at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming. Central bankers next meet to set rates on Sept. 18.

``We have a recognition of the problem from officials and now the remedy is coming,'' said Adnan Akant, head of foreign exchange in New York at Fischer Francis Trees & Watts, which oversees $39 billion in assets. ``That's good for risk appetite.''

Interest-rate futures show traders bet there's a 100 percent chance the Fed will cut borrowing costs to at least 5 percent next month. The odds were 26 percent a month ago.

Discount Rate

The remarks were Bernanke's first since a sell-off in credit markets forced the Fed to cut the interest rate on direct loans to banks and shift its policy focus toward economic growth, rather than inflation. The chairman suggested the Fed is prepared to cut the discount rate further or use additional tools to ease the strains in markets.

Bush said he will let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers, allowing them to avoid foreclosure and refinance at more favorable rates.

``The market got all excited that Bush will save the world, but the reality is that there are a lot of problems in housing he's not prepared to solve at the moment,'' said Camilla Sutton, co-head of currency strategy at Scotia Capital Inc. in Toronto.

The dollar traded at $1.3631 per euro, from $1.3625 yesterday.

Fed officials put aside concerns about the rising cost of credit at their Aug. 7 meeting because they weren't convinced a slowdown in inflation would last, minutes of the gathering said.

Futures traders increased their bets that the yen will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 9,846 on Aug. 28, compared with net longs of 1,516 a week earlier.

To contact the reporter on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net

Last Updated: August 31, 2007 15:55 EDT