Following the resignation of the Kaifu Cabinet, Kiichi Miyazawa was appointed as the new Prime Minister at an extraordinary session of the Diet convened on November 5, 1991. The formation of his cabinet was described in the media as "the start of a conservative mainstream administration."

Immediately prior to this, Miyazawa had been selected to serve as the LDP's 15th President when a three-person contest held on the eighth floor of the Party's Headquarters on October 27 ended with him having received 285 votes versus 120 for Michio Watanabe and 87 for Hiroshi Mitsuzuka. Miyazawa's administration was referred to as "full-fledged" since he had long been thought of as a serious contender for the Premiership and was the last of three "new leaders" in the LDP who had been in competition with one another since the end of the Nakasone administration. (The other two were Noboru Takeshita, who had succeeded Nakasone, and former Party Secretary-General Shintaro Abe, who had earlier been forced by poor health to abandon his bid to become Prime Minister.) The fact that Miyazawa was well-known in the United States and elsewhere abroad for his policy expertise also contributed positively to the reputation of his administration.

During this period, the international environment surrounding Japanese politics remained extremely unsettled. The breakup of the Soviet Union appeared inevitable. In addition, American demands that Japan take action to resolve bilateral trade friction between the two countries were intensifying just as the country's Bubble economy was beginning to show signs that it might burst.

The most important challenges the Miyazawa Cabinet faced were (1) promoting cooperation with United Nations Peacekeeping Operations (PKO), (2) dealing with developments in the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) where the opening of the Japanese rice market had become a major issue, and (3) political reform. Prime Minister Miyazawa demonstrated his determination to tackle these issues by choosing Tamisuke Watanuki as the Party Secretary-General, Michio Watanabe as the Deputy Prime Minister and Foreign Minister, Tsutomu Hata as the Finance Minister, and Koichi Kato as the Chief Cabinet Secretary. Then in January of the following year (1992), Shin Kanemaru was made Party Vice-President in a move that strengthened the foundation of the Miyazawa administration in preparation for tough negotiations that were expected with opposition parties over the peacekeeping operations cooperation bill and political reform.

Shortly after taking office, Prime Minister Miyazawa gave his first policy speech at an extraordinary session of the Diet on November 8. In it, he expressed his desire to make Japan into "a nation of quality," and "a lifestyle superpower" (hinkaku aru kuni - seikatsu taikoku). He explained that he wanted to promote the creation of "a vibrant, well-rounded country whose standard of living is such that it can truly be called 'developed' not only in a material sense, as evidenced by high levels of income, etc., but also in terms of the rich quality of life that is enjoyed by people living there thanks to its abundant social capital and aesthetic beauty." This speech signaled a shift in the Japanese government's priorities away from the promotion of high rates of economic growth, as first established by the policies of Prime Minister Hayato Ikeda, to a focus instead on improving the lives of ordinary citizens. (Prime Minister Ikeda had been Miyazawa's principal political mentor.) This change was also reflective of the increased concerns among the general public that the country's "Bubble" economy was on the verge of collapse.

The Miyazawa Cabinet's first legislative task was to ensure the passage of the PKO cooperation bill that had originally been submitted to the Diet during Prime Minister Kaifu's administration and was still being discussed in the Lower House. The need that had suddenly arisen for a peacekeeping operation in Cambodia intensified the urgency of efforts to complete this work. For a Japan that had so recently been criticized by the United States and other countries for making contributions of money, and not people during the Gulf War, the PKO bill was the first step in restoring the country's reputation.

The Party's weakened position in the Upper House made it necessary for it to pursue the passage of the bill through cooperation with the Komeito and Democratic Socialist Parties. These 3-way negotiations eventually resulted in the formulation of five requisite conditions for Japan's participation in PKO operations that were then incorporated into the legislation. They were the following - (1) parties involved in the conflict must have agreed to a cease-fire; (2) parties involved in the conflict must have consented to the introduction of peacekeeping personnel; (3) the neutrality of peacekeeping forces must be strictly observed; (4) Japanese personnel must be withdrawn in the event that the above conditions are not fully met; (5) the use of small arms is authorized only in the event that such action is deemed absolutely necessary to protect the lives of peacekeeping forces.

The Komeito decided to support the bill. However, the Democratic Socialist Party, citing the need to maintain "civilian control" of the military, insisted that the participation of Japanese forces in UN peacekeeping forces be made subject to Diet approval. Although the bill had already passed through the Lower House during an extraordinary session of the Diet held in the year that Miyazawa had become Prime Minister, debate in the Upper House continued and it was eventually carried over into the next Diet session the following year. Efforts to reach a compromise on the PKO cooperation bill among the LDP, Komeito, and Democratic Socialist Parties extended into the regular session of the Diet convened on January 24, 1992. It was not until late May that an agreement was finally reached on the bill.

Sections included in the compromise bill such as "a freeze on participation in UN peacekeeping forces," "a mandatory prior Diet approval," and "a review after three years" can be considered as concessions made by the government and the LDP to the other parties. However, there is no doubt that the passage of the PKO Cooperation Law on June 15 was a truly path-breaking accomplishment that greatly improved Japan's ability to contribute to the international community. Working through this law, Japan was able to send peacekeeping troops to Cambodia and Mozambique and participate in refugee relief efforts in Rwanda. Both of these activities added significantly to Japan's international reputation.

Voting on the revised PKO cooperation bill in a plenary session of the Lower House was complicated by the efforts of members of the Social Democratic Party (Shakai-to) and United Social Democratic Party (Shaminren) to disrupt the process using tactics such as the "ox walk." The two parties also took the unprecedented step of submitting letters of resignation from their Lower House members to Speaker Yoshio Sakurauchi in an attempt to force the Prime Minister to dissolve this body and hold an election. However, Sakurauchi chose not to accept these letters in view of the fact that a dissolution of the Diet would likely have worsened the plight of people throughout the country who were already suffering because of the bursting of Japan's Bubble economy. In response to the machinations of the Social Democratic Party and United Social Democratic Party, the LDP submitted a bill calling for a vote of confidence in the cabinet. Although the LDP was able to pass this bill with the cooperation of the Komeito and Democratic Socialist Party and strengthen the LDP-Komeito-DSP "Line" (Ji-ko-min Rosen) in the process, confrontations in the Diet between the ruling and opposition parties continued to intensify.

During this period, people in Japan with a connection to agriculture were closely following developments at the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). This interest intensified even further shortly after the inauguration of the Miyazawa Cabinet at the end of 1991 when GATT Director General Dunkel presented a final draft agreement to each member country calling for the tariffication of all agricultural products - including rice. Although Chief Cabinet Secretary Kato was quick to express the Japanese government's apprehension about such a move, it seemed unlikely that it would be able to resist international pressures for freer trade and the liberalization of Japan's rice market subsequently became one of the country's most important political issues.

However, achieving political reform proved to be an even more difficult task for the Miyazawa Cabinet than that of coping with the opening of Japan's domestic rice market. In the wake of the Recruit scandal, public demands for political reform had intensified and Prime Minister Miyazawa responded by pledging during a policy speech he gave at the opening of the ordinary session of the Diet in 1992 that he would "fully commit" himself to promoting it. In his capacity as LDP President, he instructed the Party to formulate a set of concrete proposals as soon as possible for bills to be submitted to and passed by the Diet during its ordinary session that dealt with the following four issues - (1) a revision of the seat apportionment for Lower House election districts; (2) political finance; (3) political ethics; (4) parliamentary reform. However, reaching a consensus within the Party on these issues was extremely difficult. Opinions were divided over what sorts of reforms were necessary. Added to this was the problem of a split within the LDP between those who supported and those who opposed the introduction of a new electoral system for the House of Representatives that would combine small, single-member districts with proportional representation districts.

This delicate state of affairs was further complicated by two scandals that surfaced during this period - one in January of 1992 involving Kyowa, a maker of materials for steel frames, and another in February involving Tokyo Sagawa Kyubin, a parcel delivery and courier service. The political world was shaken yet again by an incident in Tochigi Prefecture on March 20 involving a gunman who fired shots in the direction of Party Vice-President Kanemaru as he was delivering a speech.

On May 22, Morihiro Hosokawa, a strong critic of the existing parties, formed the Japan New Party (Nihon Shin-to) in an attempt to take advantage of this political turmoil and attract the support of disaffected voters. This event was followed by the defection of a group of politicians from the Party, the LDP's shift to opposition party status, and the establishment of the Hosokawa administration by former opposition parties.

At the same time that Prime Minister Miyazawa was struggling with these developments in domestic politics, he was also actively involved in international diplomacy. His first order of business was to meet with U.S. President Bush in Tokyo on January 8 and 9, 1992. With a sluggish domestic economy and growing pressures from American auto makers (who represented the largest manufacturing industry in the United States) already weighing heavily on their minds, Japanese leaders were understandably concerned about what sorts of demands the United States would make on them. At the conclusion of the five-hour talks, the two leaders released a joint statement outlining a "Strategy for World Growth" that emphasized the need to coordinate growth-promotion policies. They also announced agreements on a "Tokyo Declaration" and an "Action Plan" designed to alleviate bilateral trade frictions. Although the Action Plan contained rather strict provisions for numerical targets on the volume of car parts that Japan would be obligated to purchase from the United States, it did help to keep cooperation between the two countries on track. It was also during this visit that the world watched anxiously as President Bush, who was suffering from stomach flu at the time, collapsed suddenly at a dinner party held at the Prime Minister's official residence.

Also in January, Prime Minister Miyazawa traveled to South Korea to meet with President Roh Tae Woo. He then flew on the 31st of this month to New York and United Nations Headquarters to represent Japan at a meeting of the Security Council attended for the first time by the member countries' heads of state. During his visit, he also made time to meet for talks with Russian President Boris Yeltsin. Finally, Miyazawa took this opportunity to express his strong conviction that Japan should be made a permanent member of the UNSC. This was the first time that a Japanese Prime Minister had formally announced this initiative and it subsequently became a core component of Japanese diplomacy.

In April, Chinese President Jiang Zemin visited Japan and invited the Japanese Emperor and Empress to travel to China to commemorate the 20th anniversary of restoration of diplomatic ties between the two countries. The Imperial couple accepted the invitation and visited China in October. Their work contributed greatly to the improvement of bilateral relations and helped to dispel many of the negative feelings that had lingered among the populations of both countries since the Second World War.

Domestic politics in the latter half of 1992 were disrupted both by a lack of tangible progress in making political reforms and a series of scandals. In August, the Sagawa Kyubin Scandal forced Shin Kanemaru to resign from his post as LDP Vice-President and then in October to leave his seat in the House of Representatives. Also in August, the Party and the government announced the completion of their work on a 10 trillion yen emergency stimulus package that unfortunately failed to have the desired effect in spurring a sustained economic recovery.

However, the public's positive evaluation of Prime Minister Miyazawa's resolve in the face of adversity ensured that support for him and his cabinet remained strong. These sentiments spilled over into the House of Councillors election held in July of 1992 where the Party was successful in capturing 68 seats, more than half of the 127 that were at stake in this contest. The recently formed Japan New Party (Nihon Shin-to) managed to secure four seats.

In the midst of these developments, public demands for political reforms intensified even further. In November, the Committee for the Promotion of Political Reforms (Minkan Seiji Rincho) organized a rally in Tokyo's Hibiya Park attended by some 4,000 people and called for the abolishment of multi-member electoral districts for the Lower House. Feelings among the general public and mass media that reforms were inevitable continued to build. At an extraordinary session of the Diet that began in the fall of 1992, Prime Minister Miyazawa responded to this by legislating a reapportionment of seats for Lower House districts and sponsoring revisions of the Political Funds Control Law to provide for the confiscation of illegal political contributions. He also announced a policy to pursue other sweeping reforms based upon recommendations formulated by the LDP that included (1) the introduction of single-member districts for the House of Representatives, (2) the establishment of public financing to political parties, and (3) measures to alleviate the harmful effects of political factions. However, an unforeseen event took place during this period that greatly slowed progress being made on political reform.

In the wake of Shin Kanemaru's resignation, the largest group within the LDP split apart. A number of members, led by former Party Secretary-General Ichiro Ozawa and Finance Minister Tsutomu Hata broke away from the Takeshita/Obuchi faction and formed a new policy group. In June of the next year, they left the LDP completely and established the Renewal Party (Shinsei-to).

On December 11, 1992, Prime Minister Miyazawa reshuffled personnel in both his cabinet and the Party. Seiroku Kajiyama became the LDP Secretary-General, Koko Sato took over as General Council Chairman, and Hiroshi Mitsuzuka was chosen to become Chairman of the Policy Research Council. In the cabinet, Yoshiro Hayashi took over as Finance Minister from Tsutomu Hata and Yohei Kono became the new Chief Cabinet Secretary. This arrangement helped to stabilize the Party internally and strengthened its resolve to pursue political reform. Finally, when Michio Watanabe, who had been serving concurrently as Deputy Prime Minister and Foreign Minister, resigned from these posts for health reasons in April of 1993, Masaharu Gotoda, a supporter of political reform, took over as Deputy Prime Minister.

During a policy address he gave when the ordinary session of the Diet convened on January 22, 1993, Prime Minister Miyazawa reiterated his commitment to carrying out fundamental political reform. However, opinions within the LDP remained deeply divided over this issue. In addition to these complications, the subsequent formation of the Renewal Party and the defection from the Party of members including Masayoshi Takemura and Yukio Hatoyama further destabilized the political scene.

On March 31, four pieces of legislation for political reform passed successfully through the LDP's internal review process. However, in view of conditions within the Party and with the current ordinary session of the Diet scheduled to end in mid-June, Prime Minister Miyazawa decided it best to delay passage of the bills until the following Diet session. In response, the opposition camp introduced a motion into the Lower House calling for a vote of no-confidence in the cabinet. They were joined in their efforts by individuals in the LDP who later left it to join the Renewal Party led by Tsutomu Hata and others who subsequently became part of the New Party Sakigake led by Takemura. When the vote of no-confidence was successfully passed on June 18, Prime Minister Miyazawa dissolved the Lower House and formally announced on July 4 that a general election would be held on July 18.

During the election period, a summit meeting of industrialized nations was held in Tokyo. The important responsibilities that Prime Minister Miyazawa had to host talks between Japan and Russia and to meet with leaders of the other countries in attendance kept him extremely busy and made it impossible for him to fully commit himself to campaign activities. In addition, just before the general election was officially called, the Tokyo District Public Prosecutors Office uncovered an instance of bid-rigging involving general construction contractors that eventually led to the arrest of the mayor of Sendai. This also worked against the LDP in the election that followed. When the votes were totaled, the Party failed to capture a majority of Lower House seats and Prime Minister Miyazawa announced his resignation from office.

The Miyazawa Cabinet was replaced on August 6 by a coalition government consisting of seven non-LDP parties and headed by Morihiro Hosokawa. The LDP moved into the opposition for the first time since the formation of the Conservation Alliance in 1955. On July 30, Yohei Kono was elected as the new Party President.

One positive piece of news during this period was the marriage of His Imperial Majesty, the Crown Prince, to Masako Owada on June 9.