Most people agree that Mr Miyagi knew something was wrong from the start
However Terry probably realised he would so told mostly truths, with only a few lies built into the way he presented the story
Used his real name and name of his teacher in Korea
Was he "sent to help John" - not exactly, but John coming to him to return the keys is what started this
The version of Terry we see here is a character - the poor, humble man - so he was "sent" by the real version of Terry - the ruthless billionaire, the man with the plan, the man behind the curtain
John didn't physically die the way Terry explains it - he died spiritually the way it was described, heart broken, lost his students, Karate was his life
John is dead and Terry buried him - not a physical truth - but Terry sent John on vacation - so the broken version of John was buried, and the strong John returned ready to carry on with the plan
John and Terry served in the war - and maybe John always wasn't like how they saw - that could mean different things of course
By establishing himself as a Vietnam vet, and acknowledging Mr Miyagi as a WW2 in the 442nd, establishes a bond that Daniel can never have or understand
Terry knew this about in advance because he broke in and did the intel - Mr Miyagi may have been picking up on this due to the way it was presented
Mr Miyagi realised something was off from the start and listens carefully and watches to pick up the cues - he did not know what the exact lies were as they were surrounded by truths - also he may never have encountered a man as clever or practiced in this level of deceit as Terry before, we need to keep that in mind
All in all, great scene to rewatch, and pick up on these things
And yes, 2 and 3 were the wrong way round .
