* Mnuchin tells FT he sees USD strength in long term as positive
* USD/JPY gains limited by caution before US-Japan economic talks
* Aussie slips from 2-week highs on weaker iron ore prices
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, April 18 (Reuters) - The dollar steadied against the yen on Tuesday, with worries that U.S. currency manipulation complaints could touch Japan offset by U.S. Treasury Secretary Steven Mnuchin's favouring of a strong dollar in the long term.
Mnuchin told the Financial Times that he agreed with U.S. President Donald Trump's view that the dollar's strength in the short term was hurting exports, but that he saw the currency's strength over the long term as a positive.
But upbeat words from the two sides after the first round of talks in Tokyo failed fully to quell worries among investors that Japan's long-running efforts to weaken the yen will affect the dialogue.
Concerns about North Korea and French presidential elections also kept a lid on the dollar against the yen, traditionally a haven for capital in the face of political and economic stress.
"There was quite strong thinking in the market that the U.S. would maybe put pressure on Japan in terms of currency manipulation ... on that front," said Neil Jones, head of hedge fund FX sales at Mizuho in London.
The dollar was last flat at 108.870 yen after rising in Asian trade to 109.225. It had sunk into a five-month trough of 108.130 earlier on Monday amid rising tensions in the Korean Peninsula, which some analysts warned also brought a new dimension to the Japanese relationship.
"Trump appears to have made a concession regarding China, a key player in the North Korean situation," said Makoto Noji, senior strategist at SMBC Nikko Securities, referring to last week's U.S. Treasury's semi-annual currency report in which the Trump administration backed away from a key campaign promise and did not label China a currency manipulator.
"But at the same time, for the sake of his supporters, Trump has to stick with his pledge to tackle trade imbalances, and this raises the risk of his administration getting tough with Japan," Noji said.
The dollar index, measuring it against a basket of major currencies, was 0.1 percent lower at 100.25 after rising to 100.40 earlier in the session.
The euro was a shade higher at $1.06490, having seen limited movement on Monday when many European markets were shut for the Easter holiday.
Weaker prices for iron ore continued to weigh on the Australian dollar, which dipped 0.6 percent to $0.7540 after rising to a two-week high above $0.7600 on the back of upbeat Chinese growth data.
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Reporting by Ritvik Carvalho; additional reporting by Tokyo Markets team; Editing by Tom Heneghan