Thomas A. Murphy, chairman of General Motors Corp., said Japan will be inviting trade restrictions if it continues to increase its auto imports to the United States this year.

Murphy, interviewed at a meeting of the Business Council here, said Japan should understand the risks it faces in pushing its smaller cars into the United States when American car makers are in the midst of a difficult transition toward increased production of compact and subcompact models.

"Some of the things they've done indicate they are using this period to push aggressively into this market," Murphy said.

The Carter administration "ought to be telling the Japanese that they might trigger a protectonist sentiment in this country," he added.

But Murphy didn't endorse the new demand by the United Auto Workers Union for specific limits on Japanese auto imports. On Thursday UAW President Douglas Fraser called for higher tariffs on imported cars and trucks, import quotas and mandatory orderly marketing agreements covering U.S.-Japan trade.

The UAW will petition the International Trade Commission to impose trade sanctions if Japanese auto imports don't ease off in 30 to 60 days, Fraser said.Japan has been importing cars at an annual rate of 2 million a year, which would give it 20 percent of the U.S. market, and it has been moving into new areas, selling to commercial and driver's education fleet operators.

Murphy said mandatory trade restrictions might help temporarily. "But in the final analysis, we have to be competitive," he said.

Fraser's campaign was endorsed yesterday by Lane Kirkland, president of the AFL-CIO, who spoke to the Business Council members here.

U.S. automakers say they need a breathing period to adjust to the sudden shift in demand for smaller, more fuel-efficient cars. The United States has to have "an opportunity to adjust to this without losing its industry," said Kirkland.