For some reason, he didn't head off to Newfoundland; he went at tropical latitudes. If he was trying to follow a line of latitude due west to Asia, he was going the VERY long way. If he hadn't bumped into something along the way, he'd have been deeply screwed.
The direct route from Portugal to Japan would have taken him northeast. He probably had suspicions that the northeast passage wouldn't work, but the further north he went, the better. He'd have been better off going to Newfoundland. He would have failed to find the northwest passage, but he couldn't know that, either.
The explanation that he thought it was smaller would account for that. If he was going based on his suspicion that there might be something that far south, he had little evidence to support it, and was really staking his life it. It certainly paid off in spades, but that could easily have been a lie he paid for with his life.