Toyota on Monday hiked its full-year profit forecast despite saying it expected to sell fewer cars due to weakness in Europe and slumping sales in China tied to a Sino-Japanese territorial row.

Japan's biggest automaker now expects to earn 780 billion yen ($9.7 billion) in the fiscal year to March, up from 760 billion yen, but said sales would be 21.3 trillion yen, trimming an earlier target of 22 trillion yen.

A strong yen and uncertainty in China and Europe weighed, with the upward boost in earnings expectations largely due to cost-cutting, including a decrease in labour, research and development expenses, it said.

Toyota also said it had been aided by robust Asian sales and a pick-up in the North American market.

But a high yen, anti-Japan sentiment in China, and the struggling European economy posed worries going forward, said Satoshi Ozawa, Toyota's executive vice president.

"We lowered sales forecasts as the Chinese and European market environment turn increasingly murky," he told a Tokyo press briefing.

The absence of now-expired vehicle subsidies in Japan would also weigh on consumer demand, said Toyota, which beat rivals General Motors and Volkswagen to become the world's biggest automaker in the first half of 2012.

The Japanese firm now expects to sell 8.75 million vehicles globally in the current fiscal year, down from an earlier 8.8 million forecast, and cast doubt on whether it would produce more than 10 million vehicles this year.

Japan's automakers have seen a drop in China revenue stemming from a territorial spat between Tokyo and Beijing, which rival Honda last week blamed for a 20 percent cut to its annual profit forecast.

Tokyo nationalised an East China Sea island chain also claimed by Beijing in mid-September, sparking a diplomatic row that was marked by huge demonstrations across China and a consumer boycott of Japanese exports.

On Monday, Toyota said it expects to sell 200,000 fewer vehicles in China in the second half of its fiscal year and take a 30 billion yen hit to its bottom line from slumping demand in the world's biggest vehicle market.

Toyota sold 900,000 vehicles in China in 2011.

"It is difficult to predict when the environment will return to normal," Ozawa said Monday.

Earlier, Toyota said it was on track to produce 10.05 million vehicles in calendar 2012, but on Monday backed off that number saying China helped cloud the picture.

"Perhaps (production) may not reach the 10 million mark, but we're not fixated on that figure," Ozawa said.

Also Monday, Toyota said net profit in the first half of the year surged six-fold to 548.27 billion yen on sales of 10.91 trillion yen, 36 percent higher than a year earlier.

The much-improved figures are largely helped by the low base comparison caused by the devastating impact of Japan's quake-tsunami disaster on the nation's manufacturers last year.

Japanese firms have also struggled with the negative impact of a high yen which has weighed on the nation's manufacturers by making their products less competitive overseas and shrinking foreign income.

The yen hit record highs around 75 against the dollar late last year and remains strong.

Toyota shares gained 2.22 percent to 3,210 yen in Tokyo on Monday, before its latest results were released.