Naveed fired a bogey-free six-under-par 66 to surge to eight under through two rounds to be tied for eighth at the halfway mark in Shiga.
The 26-year-old is enjoying a breakout rookie season on the LPGA Tour, finishing runner-up behind world No.1 Nelly Korda at the Ford Championship in Arizona to climb to the cusp of the women's top 100.
After collecting six birdies, Naveed rose 26 spots up the leaderboard on Friday, with home hope Hana Wakimoto continuing to set a hot pace.
Wakimoto followed her opening 63 with a second-round 68 to soar to 13 under and a two-shot lead over American Yealimi Noh (65) and Thailand's Ariya Jutanugarn (66).
While Naveed was moving in the right direction, Lee went backwards, swiftly, with a disappointing 75.
Lee's second-round stumble was eight shots worse than her opening 67 as the two-time major winner plummeted from equal seventh to equal 52nd at two under.
Gabriela Ruffels is the second-best Australian in a tie for 37th at four under after a 67.
Grace Kim (72) is joint 43rd and 10 shots off the pace at three under.
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