The Japanese fought the Russians in and around Manchuria in 1938, and from everything I read the Russians smoked them six ways to Sunday forcing the Japanese to capitulate twice and two separate engagements, but during the Finnish war the Russians couldn't get any ground nor claim victories. My question is why did Hitler have faith in the Japanese "never losing a war in 2000 years" as he claimed even though the Russians forced retreat and truce, and why did the Germans not fear the Russians more after they drubbed the Japanese in these 1938 encounters?
Well it all depends on the battle and Iwould say the japanese did actualy quite well in 1938 as opposed to 1939. . If you talk about the Battle Lake Khasar (1938) , the Japanese withstood a fierce fight with far less soldiers and actually kicked ass despite tremendous attacks with very heavy shelling. the soviet leader Vasily Blücher was arrested after the battle by the NKVD https://en.wikipedia.org/wiki/Battle_of_Lake_Khasan Of course if you mention the Battle of KhalkinGol (1939) it's another story . But casualties are debatable according to various sources you'll find form both sides and losses are actually quite balanced. It's not a surprise that both parties decided to stop fighting each other at this point (until 1945) . The Soviets won, but paid a high price and because they were the defenders and were better entrenched with more reinforcements and more supplies, whereas the Japanese lacked these and at one point had only one pontoon to cross.... https://en.wikipedia.org/wiki/Battles_of_Khalkhin_Gol
As to why the Germans did not fear the Russians, there are many reasons so I'll put in my 2 cents. about a couple of them. Remember the Germans had just beaten supposedly the best army in the world (the French) in a matter of six weeks and had given the British several drubbings from the top (Norway) to the bottom (Crete) of Europe over the past twelve months. While to us, many decades later the Red Army of World War 2, appears to have been an incredibly formidable foe, such was not the universal opinion in 1941. It wasn't only the German who thought the Soviets would collapse rather quickly and they had reasons for this view. You yourself point out the underwhelming performance of the Russians versus the Finns. Then there is the whole matter of the Great Purges of the Soviet military that began in 1937 with the murder of Marshall Tukhachevsky and continued in fits and starts until 1942. I have read that from 1937-38 alone more than 35,000 officers of the Red Army were arrested by Beria's NKVD. Can you imagine the impact not just on the Army as a whole but also the chilling effect on the job performance of those not arrested?. These purges were an open secret in Soviet society and were known to German Intelligence (who actually tried to take some credit for it!). So there's two reason that I find important, there are others for sure but I'll shut up and let some others talk for a bit.
Its possible Hitler was not aware of the actual results of the battle or the true nature of the battle. It was only a battle and not an actual war.
What the early battles between Japan and Russia proved, more than anything else, is that quantity will trump quality if you have enough of the former. The Russians threw relatively large numbers of troops, hundreds of tanks, artillery pieces, and aircraft into these battles. The Japanese on the other hand left the 23rd Infantry division almost out to dry as the Imperial high command really didn't want to provoke the Russians. Even outnumbering the Japanese some 3 to 1 plus in most categories of military material, the Russians took worse than they gave. Brute force won the day, not some stellar tactical or strategic genius by Generals like Zhukov.
The Japanese lost in 1939 out of sheer arrogance, they did exactly the same mistake Hitler did later, they attacked USSR forces with insufficient forces hoping their opponent would not react effectively. They "knew", also from their experiences in 1905, that the Russians were tough fighters and had huge reserves but were likely to be badly led. The 1939 red army, despite the good equipment, was a bludgeon, not a rapier, unfortunately for the Japanese Zhukov knew how to use a bludgeon effectively.
If you search Youtube for Великая война против Японии (The Great War against Japan) a fair amount is starting to come up. I don't know what the wars were called in Japanese, so until then can't look up their film archives... Far far from my list of favorite TV series is the "Soviet Storm." (Far and away too much reenactors.) But a least there is this in English: https://www.youtube.com/watch?v=t6yM5HwphXM
I also would like to add something about why and where German might observe perfomance of Soviet Army and form their own opinion about it, the opinion which caused underestimation of Soviet side itself. Polish campaign. Closer to the end of the September 1939 the front lines of both German and Soviet troops were rather close to each other and German had chance to estimate the readiness of Soviets who, having an overhelming,mostly unlimited human/vehicle resources and facing demoralized and limited Polish units (mostly border control ones ) often had problems in combat with them, mostly not defeating but just "pushing" an enemy out of their position.Plus after the end of the war , i am pretty sure that many witnesses of those events from polish side were interrogated by germans with an idea to find any useful info. I do not think they heard many positive recalls from them...