The United States is not ruling out the eventual possibility of direct talks with North Korea, Deputy Secretary of State John Sullivan said on Tuesday, hours after Pyongyang warned nuclear war might break out at any moment.

Talks between the adversaries have long been urged by China in particular, but Washington and its ally Japan have been reluctant to sit down at the table while Pyongyang continues to pursue a goal of developing a nuclear-tipped missile capable of hitting the U.S.

"Eventually, we don't rule out the possibility, of course, of direct talks," Sullivan said in Tokyo after talks with his Japanese counterpart, Shinsuke Sugiyama. 

"Our focus is on diplomacy to solve this problem that is presented by [the North]. We must, however, with our allies, Japan and South Korea and elsewhere, be prepared for the worst should diplomacy fail," he said.

Sugiyama, briefing reporters separately, reiterated Japan's support for U.S. President Donald Trump's policy of keeping all options, but stressed the need for a diplomatic solution by bolstering co-operation among Japan, U.S. and South Korea, as well as via co-operation with China and Russia.

NORTHKOREA-NUCLEAR

North Korean leader Kim Jong-un appears at a ceremony marking a nuclear weapon test, in an undated photo released on Jan. 13, 2016. (Korean Central News Agency/Reuters)

In Washington, State Department spokesperson Heather Nauert highlighted U.S. diplomatic efforts by Sullivan and others to pressure North Korea to give up its weapons programs by encouraging implementation of international sanctions.

Nauert told a regular briefing that sanctions were choking off money supply to North Korea and it was feeling the effect, but even so Pyongyang was "not showing that they are anywhere near desiring to have talks."

"We hope that this diplomatic approach will be successful in the end," Nauert said, while adding of Secretary of State Rex Tillerson, "he's got to be the most optimistic guy in the U.S. government."

Tensions have soared following a series of weapons tests by North Korea and a string of increasingly bellicose exchanges between Trump and North Korean leader Kim Jong-un.

Leaflets apparently from North Korea calling Trump a "mad dog" and depicting gruesome images of him have turned up across central Seoul in recent days, adding an unusually personal element to North Korean propaganda.

"The situation on the Korean peninsula, where the attention of the whole world is focused, has reached the touch-and-go point and a nuclear war may break out any moment,"  Kim In-ryong, North Korea's deputy UN ambassador, told a UN General Assembly committee on Monday.

"As long as one does not take part in the U.S. military actions against the DPRK [North Korea], we have no intention to use or threaten to use nuclear weapons against any other country," according to Kim's prepared remarks for the discussion on nuclear weapons. Kim did not read that section out loud.

South Korea and the U.S. began weeklong joint naval drills in the waters around the Korean peninsula on Monday, involving about 40 ships from both militaries, including the nuclear-powered USS Ronald Reagan aircraft carrier, South Korea's defence ministry said.

South Korea Koreas Tensions

The five-day drills that ended Friday in the waters around the Korean peninsula involved fighter jets, helicopters and 40 naval ships and submarines from the U.S. and South Korea and included the aircraft carrier USS Ronald Reagan. (Vincent Yu/Associated Press)

North Korean state media said Tuesday the allies' "desperate efforts" to block North Korea's advance only showed it should continue its nuclear program "to the last."

Asked about the North Korean envoy's warning of nuclear war, Chinese Foreign Ministry spokesperson Lu Kang said it would not be in anyone's interest.

"China still hopes that all parties, in this situation where things on the Korean peninsula are highly complex and sensitive, can exercise restraint and do more to benefit the lowering of tensions in the region," Lu told a daily news briefing.

Scrambling for cash

The UN Security Council has unanimously ratcheted up sanctions on North Korea over its nuclear and ballistic missile programs since 2006.

The most recent UN sanctions banned exports of coal, iron ore and seafood, aimed at cutting off one-third of North Korea's total annual exports of $3 billion.

Experts say North Korea has been scrambling to find alternative sources of hard currency to keep its economy afloat and to advance its weapons program further.

North Korea's Lazarus hacking group was likely responsible for a recent cyber heist in Taiwan, cyber-security firm BAE Systems said on Monday.

BAE Systems and other cyber firms have previously linked Lazarus to last year's $81-million cyber heist at Bangladesh's central bank.

North Korea had also recently allowed citizens as young as 12 to bet on local horse races for the first time, state news agency KCNA reported.

Gamblers in the reclusive and tightly controlled state had previously risked three years hard labour, but the growing importance of private markets meant more people had money to spend on leisure, experts said.

Lee Sang-keun, a researcher at the Institute of Unification Studies at Seoul's Ewha Womans University, said wealthy North Koreans had to pay for such activities with Chinese or U.S. currency.

"Many North Koreans make lots of money from the market, dine at hamburger restaurants and go shopping, all of which help fatten regime coffers. That's part of the reason why the regime still has some financial latitude, despite international sanctions," Lee said.

With files from The Associated Press