* NAFTA sours mood in auto sector - analysts
* Nomura upgrades JAL on strong domestic passenger revenues
By Ayai Tomisawa
TOKYO, Aug 16 (Reuters) - Japan’s Nikkei share average was nearly flat on Wednesday morning as investors stayed on the sidelines after sharp gains on the previous day, while Japan Airlines bucked the trend thanks to a brokerage’s bullish view.
The Nikkei was flat at 19,756.77 points by the midday break.
Japanese stocks have seen volatile trade recently, first spooked by growing tensions between the United States and North Korea, which boosted the yen, but then rebounding on bargain hunting as fears of outright war ebbed.
Analysts said that investors remain wary that the rhetoric from U.S. President Donald Trump and North Korean leader Kim Jon Un could heat up again.
“It’s not that risks on North Korea completely faded, but for now, after a sharp rise on the previous day, investors decided to wait for more catalysts before investing actively,” said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Japan Airlines rose 1.3 percent after Nomura Securities raised its rating to ‘buy’ from ‘neutral’, saying that it now expects a milder decline than the broker’s initial forecast due to strong domestic passenger revenues and improving cargo revenues.
Rival ANA Holdings rose 0.5 percent.
With the Trump administration launching renegotiation of the 23-year-old NAFTA trade pact this week, automakers underperformed on uncertainty about the fate of Mexico, where Japanese automakers have plants.
Trump aims to shrink a growing trade deficit with Mexico and tighten the rules of origin for cars and parts.
“We still don’t know how much impact NAFTA deals would give on Japanese automakers, but the event is souring sentiment on the auto sector,” said a fund manager at a Japanese asset management firm.
Mazda Motor Corp dropped 0.6 percent, Toyota Motor Corp shed 1.3 percent and Honda Motor Co fell 0.3 percent.
Elsewhere, shares of discount store operator Don Quijote Holdings Co fell as much as 3.3 percent as its operating profit forecast for the year through June 2018 was 48 billion yen ($434 million), below the 52 billion yen forecast by analysts polled by Thomson Reuters StarMine.
The broader Topix was up 0.1 percent to 1,617.54. (Editing by Kim Coghill)