Honda has significantly upped its forecast in Japan, but it is nervous about China.

Honda says it is confident that new car sales in its domestic market of Japan will grow over the next several months, but a general sentiment in China against Japanese products has forced it to lower its overall profit projections.

The Japanese automaker today ratcheted up its home market sales forecast for the fiscal year ending next March to 850,000 new cars in its home market, a 16 percent increase from what it had projected previously.

The bid of confidence in Japan comes on strong early sales for its two new city cars, the N Box and N One. The two cars, which fall under Japan's special "kei" car tax bracket, boast city-friendly proportions and a dose of style not often seen in the segment.

In addition, Honda will also soon begin selling a hybrid version of its Accord in Japan.

However, the good news out of Japan was offset by what Honda expects will become a 20 percent decline in overall profitability thanks to dramatically lower sales in China.

Japan and China have sparred over a tiny island chain, a territorial dispute that has seen a dramatic backlash against Japanese products in China. Sales of Japanese products of any kind - not just new cars - have plummeted in China.