* NAFTA sours mood in auto sector - analysts
* Nomura upgrades JAL on strong domestic passenger revenues (Updates to close)
By Ayai Tomisawa
TOKYO, Aug 16 (Reuters) - Japan’s Nikkei share average was nearly flat on Wednesday with the previous day’s rally running out of steam as the yen’s weakening slowed, while Japan Airlines bucked the trend helped by a brokerage’s bullish view.
The Nikkei inched down 0.1 percent to 19,729.28.
Japanese stocks have seen volatile trade recently, first spooked by growing tensions between the United States and North Korea, which strengthened the yen, but then rebounding on bargain hunting as fears of conflict ebbed.
But analysts said that investors remain wary of tensions between Washington and Pyongyang mounting 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 1.6 percent after Nomura Securities raised its rating to ‘buy’ from ‘neutral’, saying it now expects a milder decline than initially forecast due to strong domestic passenger revenues and improving cargo revenues.
Rival ANA Holdings gained 0.4 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 0.3 percent and Toyota Motor Corp shed 1.3 percent. Tire manufacturer Bridgestone Corp slipped 0.8 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.
Japan Drilling Co climbed 3 percent after the company said it would provide offshore drilling services to Malaysia’s Petronnic Sdn Bhd.
The broader Topix ended the day flat at 1,616.00. (Additional reporting by Shinichi Saoshiro; Editing by Jacqueline Wong)