Aug. 31 (Bloomberg) -- The yen headed for a second monthly advance against the euro and dollar on concern U.S. subprime mortgage losses are weakening global credit markets, prompting investors to shun riskier assets funded by loans in Japan.

The Japanese yen has gained against all 16 most-active currencies this month as traders fled asset-backed commercial paper and turned to the safety of government debt, pressuring the Federal Reserve to cut borrowing costs next month. Fed Chairman Ben S. Bernanke is scheduled to speak today at the central bank's annual symposium in Jackson Hole, Wyoming.

``It isn't an environment for investors to take on substantial risk,'' said Mike Moran, a senior currency strategist at Standard Chartered in New York. ``The market is in risk limbo now. People won't bet heavily against the yen at the moment.''

The yen traded at 115.86 per dollar and 157.87 per euro at 6 a.m. in Tokyo. Japan's currency has gained 2.4 percent against the dollar and 2.8 percent versus the euro this month as a rout of global stocks and credit markets prompted investors to pare the carry trade.

The yen's rally also encouraged some short-term traders to bet on gains in the currency.

``The subprime and credit issues aren't over yet,'' said Christian Dupont, a senior currency trader at Societe Generale SA in Montreal. ``Some investors pared the carry trade and sat on their hands, waiting for the market to stabilize. Some other investors, especially short-term speculative players, got in to buy the yen.''

New Zealand's dollar lost the most against the yen this month among major currencies, falling 10.2 percent, the most since October 1987. Australia's dollar has declined 6.6 percent, the biggest monthly loss since September 2001, while the Brazilian real decreased 6.9 percent over the same period.

Yen 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.

Consumer Prices

A Japanese government report may show consumer prices excluding food in July declined for a sixth consecutive month, reducing the Bank of Japan's case to raise interest rates. The so-called core CPI might drop 0.1 percent following the same decline in June, according to a Bloomberg poll of economists. The data will be released at 8:30 a.m. in Tokyo.

Bernanke will deliver the opening speech at 10 a.m. Washington time before policy makers and economists from around the world at the annual symposium organized by the Kansas City Fed. The conference's theme is housing and monetary policy.

Futures contracts showed yesterday traders see a 64 percent chance the Fed will cut its target rate for overnight lending between banks to 4.75 percent at its Sept. 18 meeting. The odds were 44 percent a week ago.

The Fed is ``closely monitoring'' markets and is ready to ``act as needed,'' Bernanke wrote in an Aug. 27 letter sent to New York Senator Charles Schumer that was released Aug. 29.

`Vote of No Confidence'

A 0.5 percentage point rate cut by the Fed would be a ``vote of no-confidence'' in the financial markets' ability to maintain a downward-trending volatility, Naomi Fink, chief currency strategist for BNP Paribas in New York, wrote in a research report yesterday. It would cause the value of credit assets to fall and yen-funded investment to be ``rapidly'' withdrawn from the U.S.

Short-term debt maturing in 270 days or less fell $62.8 billion to a seasonally adjusted $1.98 trillion in the week ended Aug. 29, according to data released by the Fed yesterday. Asset- backed commercial paper, which accounts for about half the market, fell 5.6 percent to $998 billion.

Commercial paper outstanding has fallen $244.1 billion in the past three weeks as more than 20 companies and funds, including Cheyne Finance and Thornburg Mortgage Co., failed to find buyers for new paper after losses on some mortgage-related securities scared traders into safer investments.

``It tells you that people are holding back risk appetites and that people are concerned about liquidity,'' said Kathy Lien, chief currency strategist at DailyFX.com in New York. ``If the Fed does cut borrowing costs, it will help lower the costs for companies and consumers. This will give the stock markets a bit of a boost and help risk appetites.''

To contact the reporter on this story: Min Zeng in New York at mzeng2@bloomberg.net.

Last Updated: August 30, 2007 17:03 EDT