Moon, who is scheduled to visit Washington next week for talks with U.S. President Donald Trump, also told CBS in an interview that he hoped to draw North Korea into negotiations on its nuclear program by the end of the year, while talks with the United States about military options could wait.
Dozens of North Korean missile launches and two nuclear bomb tests since the start of last year and Pyongyang's vow to develop a nuclear-tipped missile capable of hitting the U.S. mainland have put North Korea at the forefront of global security concerns.
Moon's remarks on CBS's "This Morning" program came the day after the death of Otto Warmbier, the 22-year-old American student who had been held prisoner in North Korea for 17 months. Warmbier died at a Cincinnati hospital just days after North Korea released him from captivity in a coma.
Moon said that while "we cannot know for sure that North Korea killed Mr. Warmbier ... I believe it is quite clear that they have a heavy responsibility in the process that led to Mr. Warmbier's death.
"I believe we must now have the perception that North Korea is an irrational regime," said Moon, who was elected in May.
"Even today, there are many Korean nationals and American citizens who are detained in North Korea," Moon said. "I also urge North Korea to return these people to their families."
North Korea has detained two Korean-American academics and a missionary, a Canadian pastor and three South Korean nationals who were doing missionary work there. Japan says at least several dozen of its nationals are being held in the country.
Moon, who was elected on a plan to engage in talks with North Korea, said he agreed with Trump on being willing to participate in a dialogue with North Korea under certain conditions, given that sanctions and international pressure have not resolved the situation.
"First we must vie for a freeze of North Korea's nuclear and missile programs," Moon said. "And then, as a second phase, try to achieve the complete dismantlement of North Korea's nuclear program. And I believe there are voices supporting such a step-by-step approach even within the United States."
Signaling a major shift in U.S. policy, Trump said earlier this year that he was willing to talk to North Korean leader Kim Jong Un to try to stop Pyongyang's nuclear program.
"He mentioned that it would be an honor to be able to meet Kim Jong Un," Moon told CBS. "So I believe President Trump went much further than I did."