James is battling a shoulder injury suffered in the opening game of the tournament, but will be given until the last minute to prove his fitness for Tuesday's clash.
Diaz said it would be a blow to Colombia if the 24-year-old Real Madrid attacker was missing for the encounter in Pasadena, California.
"It would be very significant," he told a news conference.
"He's one of the best players in the world. He has class and great football and human quality.
"It is a significant loss, but Colombia has other good players at good levels and have options to replace him."
Paraguay are third in Group A after opening their tournament with a 0-0 draw against Costa Rica.
Warm weather in Orlando, Florida, made it tough for Paraguay and Diaz said his side needed a clever approach.
"We have to be very smart. They had an extra day of recovery and didn't have to travel," Diaz said.
"These are things that must be taken into account because we made a huge effort against Costa Rica."