One stroke off the pace after the opening round, Campbell and Smail thrived under the foursomes format, completing one of just two bogey-free rounds at the Taiheiyo Club and moving to 15-under 129 through 36 holes.
"We played really well," said Smail, who has competed in Japan on the Australasian Tour. "I putted really nicely and holed just about everything that Campbell left for me, hitting great shots in close."
The duo of Shigeki Maruyama and Toshimitsu Izawa thrilled the home crowd with a 69 that gave Japan a share of second place at 11-under 133. First-round leaders Andrew Coltart and Dean Robertson of Scotland could not match their opening-round 62 but stayed within striking distance with a 1-under 71.
The world's first- and fourth-ranked players were penalized Thursday for taking an illegal practice putt. But they climbed within five shots of the lead and are tied with the Danish duo of Thomas Bjorn and Soren Hansen and the Spanish team of Sergio Garcia and Miguel Angel Jimenez.
"It could have been a really low number today, but that's just the way it goes," Woods said. "This format is awfully difficult to get into a rhythm, and we found it a little bit in the middle of the round. But we just made our share of mistakes a little bit, too."
Despite a successful round, Campbell agreed with his American counterpart.
"I had a birdie putt on the sixth hole and the next birdie putt wasn't until the last hole. It's one of those things you've got to pretty much be concentrating on being focused on what you're doing and just hopefully get things done properly," said Campbell, whose team has 15 birdies through two rounds.
Woods said time is running out for he and Duval to catch Campbell and Smail.
"We just need to do (Saturday) like we did today, both play well at the same time and give us a chance to make some birdies because we are getting pretty far behind New Zealand," he added.
Last year, Woods and Duval overcame host Argentina, which was represented by Angel Cabrera and Eduardo Romero, to capture the inaugural event. Cabrera and Romero are among five teams tied for seventh at 9-under 135 after a 68.
Among those trying to unseat Woods and Duval are 30 European Tour members who combined for 21 wins this season.
The World Cup is the fourth event in this year's World Golf Championships and the third since the September 11 terrorist attacks. Woods won the last of his five 2001 titles at the WGC-NEC Invitational in late August. He tied for 13th at the season-ending Tour Championship.
The winning team will share $1 million -- one-third of the total purse.
The 7,232-yard, par-72 Gotemba Course is considered one of the top facilities in Japan.