Seoul and Tokyo -- both of them democracies and market economies -- are mired in long-running disputes over Japan's use of forced labour in the first half of the 20th century.

The two neighbours have been embroiled in a tit-for-tat trade war that saw them remove each other from their lists of trusted trading partners this month, raising concerns over global supply chains.

That came after Tokyo imposed restrictions on exports crucial to tech giants such as Samsung last month, following a series of South Korean court rulings ordering Japanese firms to pay for wartime labour.

But Moon sought to dial down the temperature on Thursday, saying Seoul was willing to work with Tokyo to secure "fair trade and cooperation" in the region.

"If Japan chooses the path of dialogue and cooperation, we will gladly join hands," Moon said in a speech to mark the anniversary of Korea's liberation from Japan's 1910-45 rule.

Dressed in a pale grey-blue hanbok, the traditional Korean attire, Moon -- who earlier this month vowed South Korea will "never be defeated again by Japan" -- insisted that Seoul has "not dwelt on the past".

"Reflecting on the past does not mean clinging to the past but overcoming what happened and moving toward the future," said Moon.

"We hope that Japan will play a leading role together in facilitating peace and prosperity in East Asia while it contemplates a past that brought misfortune to its neighbouring countries."

Tokyo maintains that all issues of wartime compensation were settled under the 1965 treaty that re-established diplomatic ties, including a package of about $800 million in grants and cheap loans for the former colony.

- 'Unification by 2045' -

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The dispute has raised concerns over the potential implications on the security cooperation between the two US allies in the face of a series of North Korean missile tests in recent weeks.

Pyongyang and Washington are engaged in a long-running diplomatic process over the North's nuclear and missile programmes that has seen three unprecedented encounters between their leaders in the space of a year although little progress has been made on denuclearisation.

Moon sought to play down North Korea's recent tests -- following the example of US President Donald Trump -- as he assured Seoul had "even stronger" defence capabilities and was working to prevent an escalation of tensions.

But, he added: "The ultimate goal that these actions serve is dialogue, not confrontation."

Moon pledged Thursday that he will "solidify the foundation" with the goal of "achieving peace and unification by 2045", although his single five-year term presidency ends in 2022.

One analyst dismissed Moon's mention of a unified Korea.

"His outlook is overly rosy and it will be difficult to create a consensus around it," said Shin Beom-chul, an analyst at the Asan Institute for Policy Studies, describing the claim as "meaningless".

Pyongyang has recently rebuffed Seoul, saying nuclear talks will be "strictly" between the North and the US and refusing to hold separate dialogue with the South.

The dovish South Korean president has long favoured dialogue with Pyongyang, dangling cross-border business projects as incentives.

Moon said economic cooperation with the North will provide a one-stop solution to "problems we currently face, such as low growth, low birth rate and an aging society".

But proposed projects are currently blocked because of international sanctions imposed on the North over its nuclear and ballistic missile programmes.