The LDP's 12th President, Noburo Takeshita, gave his first policy speech as the country's new Prime Minister at the opening of the 111th Extraordinary Session of the Diet held in late November of 1987. In addition to pursuing spiritual enrichment through "rejuvenation of rural communities" (furusato sosei), he pledged to make "sincere action" (seijitsu na jikko) an integral part of his political philosophy. Takeshita stressed as well his intention to integrate Japan's domestic and foreign policies and to implement a number of reforms to enhance both market liberalization and structural adjustment so that Japan could better "contribute to the world." The new Prime Minister also expressed a strong commitment to tax reform that would "provide a stable balance among income, consumption, and property." In a policy address he gave in January of 1988, Takeshita further emphasized the importance of tax system reform by designating it as one of his "top priorities, especially in light of the aging of our population and the internationalization of our economy and society."

Opposition parties reacted strongly to this, arguing that "the introduction of a major indirect tax would constitute a breach of former Prime Minister Nakasone's pledge not to do so." However, the Speaker of the House had earlier ruled that the rejection of the sales tax bill must be accompanied by a "review of the ratio of direct to indirect taxes." As the ruling party the LDP clearly had an obligation to abide by this directive. At the same time, however, Prime Minister Takeshita made it clear that he intended to carry out tax reform in such a way that "the people's acceptance" of it could be obtained. With this in mind, he promised to work during the planning process to resolve six potential problems associated with the introduction of a new indirect tax that were sources of public concern - (1) its regressive nature and the possibility that it might produce (2) inequities, (3) excessive tax burdens, (4) creeping tax rate increases, (5) new administrative costs, and (6) inflation.

In a move that was in keeping with the spirit of Japan as a "country that contributes to the world," Prime Minister Takeshita chose an ASEAN summit meeting held in Manila in December of 1987 as the destination of his first official overseas trip. While there, he advocated the formation of "a new partnership for peace and prosperity" that would support ASEAN development and help Japan at the same time to fulfill a part of its duty to the international community. Two key components of this were a proposal to create an "ASEAN-Japan Development Fund" and another for a "Japan-ASEAN Comprehensive Exchange Plan" (Nihon - ASEAN Sogo Koryu Keikaku). Then in January of 1988, Prime Minister Takeshita paid a visit to the United States where fiscal and trade deficits were fueling strong criticism of Japan. In talks with U.S. President Reagan, both sides reaffirmed the importance of their bilateral relationship. In addition, President Reagan expressed his "sincere gratitude" in response to Takeshita's offer to support the U.S. dollar in foreign exchange markets and to increase the Japanese government's financial contribution to the maintenance of U.S. military forces in Japan.

1988 was also a year in which a number of important steps towards peace were made around the world including the considerable easing of tensions between the United States and the Soviet Union, the cease-fire agreement in the Iran-Iraq War, and the beginning of the Soviet Union's military withdrawal from Afghanistan. As these historic events were unfolding, Prime Minister Takeshita traveled to South Korea in February to attend the inauguration ceremony for President Roh Tae Woo. He then made trips in April to four Western Europe nations, including Great Britain. In May, he visited the United States to attend a United Nations General Assembly Special Session on Disarmament followed by trips to four Western European Nations and the EC. In the month of June, Prime Minister Takeshita attended the Toronto Summit in Canada and then traveled to Australia in July to take part in that country's bicentennial celebrations. Finally, he made a trip to China in August on the occasion of the 10th anniversary of the conclusion of the Treaty of Peace and Friendship between Japan and the PRC and another to South Korea in September for the opening of the Olympic Games in Seoul. In just one year (1988), the Prime Minister successfully completed nine overseas trips and spent a combined total of 59 days abroad.

In the midst of this international travel, Takeshita formulated a "framework for international cooperation" comprised of three principal parts - "the promotion of cooperation for peace," "the strengthening of international cultural exchange," and "the expansion of official development assistance (ODA)." The Prime Minister firmly believed that the promotion of mutual understanding among countries was of vital importance to the future development of the international community. His conviction that Japan should pursue this goal by concentrating much of its energy on efforts to improve cultural exchanges provided a fresh perspective.

As Japan's influence on the global economy increased, however, many countries intensified their demands for market liberalization and development assistance. In light of the significant impact changes in these sectors would have on domestic industries, the Japanese government was especially concerned about how best to respond to demands that the country's economy be opened more widely to agricultural imports and that foreign firms be allowed to participate in public works projects. It was also undeniable that a scandal in the previous year involving a domestic firm's (Toshiba) violation of COCOM regulations had intensified international criticism of Japan.

In domestic politics, the government focused most of its energies on the promotion of tax reform. The "Outline for Fundamental Tax Reform" (Zeisei No Bappon Kaikaku Taiko) approved by the Party in June combined drastic cuts in taxes levied on middle-class, salaried workers with the creation of a new tax. It called for (1) a reduction of taxes, including those on income and residence, (2) a lowering of corporate taxes, (3) a reduction of inheritance taxes, (4) an adjustment of levies on property, and (5) a restructuring and review of indirect taxes as well as the introduction of a 3 percent consumption tax. After the Outline had been decided upon and accepted by the Party, the central and regional organizations of the LDP conducted extensive public relations campaigns, seminars, and lectures across Japan in an effort to gain the understanding and support of people in every walk of life. Starting in September, Takeshita also traveled throughout the country in his capacity as Party President to conduct conferences on tax reform and to explain its importance to the general public.

A bill for six tax reforms was submitted to the Diet during its 113th Extraordinary Session held in July. However, the surfacing of the Recruit Scandal at the same time prompted opposition parties to demand that until witnesses had been summoned to the Diet and the affair thoroughly investigated, they would refuse to engage in all other parliamentary deliberations. The LDP argued that the Recruit Scandal and deliberations on the tax reform bill should be kept separate and that multipartisan discussions on the latter issue must continue so that the public's understanding of this initiative could be won. Unfortunately, the opposition parties rejected this plea and decided instead to obstruct the Diet's proceedings with tactics, including the boycotting of voting, that on several occasions brought business to a halt and made it virtually impossible to engage in constructive deliberations. Extended twice, the Diet session finally ended on December 28, 1988, after having lasted for a total of 163 days - the longest period for any extraordinary session in history.

Eventually, the Lower House Budget Committee reluctantly chose in the absence of opposition parties to approve the tax reform bill with a vote only of the remaining members from the LDP. In the plenary session that followed, a revised bill received support from the Komeito and Democratic Socialist Parties and was passed without the participation of the Socialist and Communist Parties. These parties, however, continued their protests in the Upper House. Their tactics included the introduction of a bill to press for a vote of no-confidence in the cabinet, another to dismiss the Upper House Steering Committee Chairman, various other motions to censure, and even "ox walking" to delay proceedings. Despite these disruptions, the LDP still managed to pass the bill in December with a majority of affirmative votes.

A decade after it began work during Prime Minister Ohira's administration to bring about a fundamental reform of the 38-year old Shoup tax system, the Party's diligent efforts had finally been rewarded with success. The opposition parties certainly deserve strong criticism for having obstructed democratic politics and hindered the ability of the people to understand the nation's tax system by their shameful refusal to participate in deliberations on the reform bill.

LDP candidates were successful in two of three by-elections held for the Upper House in 1988, capturing seats in Saga and Fukushima while suffering defeat only in Osaka. The Party's decisive victory in the Fukushima race was especially helpful in creating momentum behind efforts that followed to enact legislation related to tax reform. In addition, the Party won 9 of 10 gubernatorial races and 124 of 129 mayoral elections held during the same year. These victories were made possible in large part by an expansion of the LDP's support base, which by the end of August had swelled to a total of 4,998,829 party members and 778,127 fraternal members. These figures far exceeded any previous record and amounted to 5.62 percent of all voters nationwide.

Immediately after the dawn of the new year, a tragic event occurred that saddened the entire country. On January 7, 1989, the Showa Emperor finally succumbed to an illness with which he had been battling since the previous fall. It was indeed unfortunate that the prayers the people had made day and night for his recovery since it was first reported at the close of the previous year that his condition was deteriorating had gone unanswered. From the very beginning of his 62-year reign in 1926, the Emperor had always been a source of inspiration for the people and made untold sacrifices on their behalf during troubled times at home and abroad. It would not be an exaggeration to say that he provided the people with the strength they required to rise up and rebuild the country from the ruins of war. All of the members of the LDP joined together to express their most heartfelt condolences to the Imperial Family and pray for the peaceful rest of the Emperor's spirit.

Following the Emperor's death, the Crown Prince Akihito took his father's place on the Chrysanthemum Throne and proclaimed that "Heisei" or "Achieving Peace," would be the official name of the new imperial era. For its part, the Party pledged to support the new Emperor in his role as the symbol of national unity and work diligently to fulfill his wishes for the peace and prosperity of Japan and the entire world.

The February 24th state funeral for the Showa Emperor was attended by approximately 9,800 individuals (including representatives from 164 countries and 28 international organizations) and conducted according to ancient tradition.

The first year of the Heisei era was a difficult one for the Party. Of particular concern in the run-up to the House of Councillors election that summer was the negative way in which the fallout from the Recruit Scandal of the previous year had affected levels of public trust in politics. A number of important political figures including members of the cabinet, high-ranking government officials, and executive officers of the LDP were found to have been involved. And although top officials within the political opposition had been implicated as well, it is perhaps not surprising that most public criticism focused on the LDP as the ruling party. In addition to these difficulties, expectations were low that the Diet would be able to complete the compilation of the 1989 budget before the end of the current fiscal year in March. This was due in large part to the fact that efforts to pass legislation related to tax reform had continued until the very end of the 1988, complicating the budget-making process and delaying the resumption of the 114th Ordinary Session of the Diet until February. Opposition demands that key figures be called to testify at times brought Diet proceedings to a standstill and further disrupted deliberations on the budget. Voter sentiments were clearly illustrated by the overwhelming defeat an LDP candidate suffered at the hands of a candidate from the Socialist Party in a by-election held for the Upper House in Fukuoka during this period.

Concerned about the seriousness of the situation, Prime Minister Takeshita had in the previous year instructed Party executives to formulate concrete policies for political reform. In response, they created a "Committee on Political Reform" (Seiji Kaikaku Iinkai) within the Party that began work on promoting fundamental changes to the political system as a new political objective to complement tax reform. After hearing a wide range of opinions both from inside and outside the Party, the Committee began work to achieve three principal reforms - (1) the realization of a low-cost election system; (2) the reexamination of the Political Funds Control Law; (3) an adjustment of the seat distribution for the House of Representatives. In March, a drafting committee was formed to prepare a report outlining the proposals for political reform. At the same time, Prime Minister Takeshita created his own private advisory body called the "Conference of Experts on Political Reform" (Seiji Kaikaku ni Kansuru Yushikisha Kaigi) and instructed it to produce recommendations of some kind by May or June.

In a policy address he gave at the opening of the Ordinary Session of the Diet, Takeshita stressed that political reform was "the cabinet's top priority" and called for changes that would help to dispel mistrust of politics among the public. His sense of crisis was shared by many other individuals in the Party who then moved to create a number of groups that produced a diverse array of opinions on and suggestions for political reform.

Despite these efforts, however, the Recruit Scandal eventually reached into the very core of the LDP. On April 25, Prime Minister Takeshita announced his intention to take responsibility for the public's loss of confidence in the political system by resigning from office. Immediately following this event, the budget was finally passed by the House of Representatives. However, it soon became clear that with the Upper House election so close at hand it would be impossible to choose a new LDP President to replace Takeshita through the normal selection process. Instead, this decision was entrusted to the top four executives in the Party. It was not until Foreign Minister Sosuke Uno was formally selected by a Joint Plenary Meeting of Party Members from Both Houses of the Diet on June 2, however, that this difficult ordeal for the LDP finally came to an end.

During this period, the Party's most urgent task was to make its position on political reform clear to the general public. Taking into consideration the proposals that the Conference of Experts on Political Reform had produced at the end of April, the Committee on Political Reform compiled an "Outline for Political Reform" (Seiji Kaikaku Taiko) in late May that included proposals designed to improve standards of ethical conduct, fairness, and transparency in politics and to bring about a fundamental reform of the medium-sized electoral system in use at that time. The Party regarded a situation in which its own members had been indicted in connection with a major political scandal with the utmost seriousness. To address this problem, the LDP adopted "Our Party's Measures Concerning the Recruit Problem" and asked those under investigation to deal with the matter responsibly, regardless of whether they were found guilty or innocent of the legal charges being brought against them.

The Takeshita administration unfortunately came to an end after having been able to complete only a part of its political agenda. It must be pointed out at the same time, however, that it did have remarkable success in implementing fundamental tax reforms, including a vitally important readjustment of the ratio between direct and indirect taxes. This solved a problem that had vexed policymakers for many years and as such was arguably the Takeshita administration's most notable policy achievement. It can also be said that these changes had an immeasurably positive impact on Japan's future development. In addition, Prime Minister Takeshita committed himself to promoting the "rejuvenation of rural communities." As part of this effort, he arranged for 100 million yen grants from the central government to be provided to local governments throughout the country to support independent projects contributing to development and community building at the grassroots level. This initiative is well-known as one that continues to produce a variety of benefits throughout the country. Finally, Prime Minister Takeshita responded to requests from the international community that Japan create a "vision for international cooperation" (kokusai kyoryoku koso) and demonstrated his sincere determination to implement it by visiting five ASEAN countries even after having announced his intention to resign from office. It can truly be said that the Takeshita administration successfully rose to the many challenges it faced during the transition from the Showa to the Heisei era.