YKK and the 2000 leadership challenge

Always seen as something of a maverick, Kato formed a relationship with two other young LDP reformers, Taku Yamasaki and Junichiro Koizumi, during the Kaifu administration. The three together became known as "YKK" after the initials of their last names. Originally the trio had agreed to sway their factions towards the new generation of LDP leaders, and marginalize the old guard within the Diet. With the election of Miyazawa (then leader of Kato's own faction) in 1991, YKK gained greater prestige and power within the party. From the Miyazawa era onwards, YKK represented the power base of the anti-mainstream faction in the LDP. All three leaders made repeated tilts at the party leadership in the 1990s, but were unsuccessful. In 1998, Kato assumed leadership of the Kochikai faction, taking over from Miyazawa.

In May 2000, upon the sudden illness and death of Prime Minister Keizō Obuchi, Kato did not make a challenge for leadership of the LDP, believing that internal strife would not be healthy for a party in mourning. By November, however, displeased with the slow pace of reform and poor public image of the Mori administration, Kato made his move. After consulting with the opposition parties, Kato realized that with support of his and Yamasaki's factions, a vote of no-confidence against Mori would pass in the Diet. Initial public reaction to Kato's announcement of this vote was good, with Mori's approval ratings diving to 30%. Unfortunately for Kato, the LDP Secretary-General at this time, Hiromu Nonaka, was a strong supporter of Mori. Nonaka launched a harsh round of party discipline, threatening to expel any LDP members that voted against Mori, and his threats had the desired effect: Kato's support dried up even within his own faction. Kato and his remaining supporters abstained from the no-confidence vote as a face-saving measure, knowing that he could not win. However, the damage had been done with Kato and Yamasaki left to bear the full brunt of public humiliation. The aftermath of Kato's rebellion was disastrous as a large segment of his faction split off, weakening his influence in the Diet. Public opinion that had initially supported ousting Mori now blamed Kato for his failure. The opposition parties were frustrated with his unwillingness to break from the LDP. Both Kato and Yamasaki had been considered candidates for Prime Minister, but with the loss of prestige resulting from the Mori affair, they had lost their chance. With Nonaka's resignation shortly after Kato's rebellion, the path was clear for someone to replace Mori. Junichiro Koizumi, the only member of YKK undamaged by the events of November 2001, finally gained control of the LDP. While Kato and Yamasaki had failed, the reformist, anti-mainstream ideals of YKK had finally moved to the forefront of Japanese politics, providing validation for Kato and his views.

Kato and Ichirō Ozawa

Kato had a sometimes difficult relationship with fellow LDP reformer Ichirō Ozawa, a strong advocate for reform within the mainstream Tanaka/Takeshita faction. In 1993, Ozawa chose to split from the party and form the Japan Renewal Party, rather than continue within the LDP. This was seen as a serious betrayal by many, including Kato. When Kato was in a similar position in 2000, he chose party loyalty, despite his chances of considerable influence in the opposition had he crossed over. When the LDP was considering a merger with Ozawa's Liberal Party in the late 90s, Kato was strongly opposed to bringing Ozawa back to the LDP fold. Kato and Ozawa are often portrayed as archenemies, despite their very similar views on economic and political reform (in foreign policy Kato is somewhat less hawkish than Ozawa, advocating a more cautious international role for Japan).

Scandals

Kato was involved in several scandals in Japanese politics during his political career. He was implicated in the Recruit scandal in the late 1980s, tarnishing his reputation for several years. In 2002, he was the centre of a major scandal involving tax evasion, bribery and misuse of political funds. His secretary Saburo Sato had been charging a "Kato Consumption Tax" to companies wanting access to Kato while seeking public contracts. Sato had also failed to declare ¥100 million in taxes. While Kato denied any knowledge of the affair, few believed that such widespread corruption could have occurred in his office without his approval. It was later revealed that he had been using funds earmarked for political use to pay the rent on his Tokyo apartment. Faced with this evidence, he soon acquiesced to demands for his resignation. In November 2003, Kato made his return to the Diet as an independent, having retreated from politics long enough for the scandal to die down, and rejoined the LDP as a high-ranking member.

House fire

On 15 August 2006, Kato's adjoining house and office in Tsuruoka burned to the ground on the 61st anniversary of the surrender of Japan in World War II. The attack was confirmed as arson and the lead suspect was expected to be charged some time in September 2006 . Reportedly the suspect was affiliated with a far-right organization and set fire to Kato's house for making remarks critical of then-Prime Minister Junichiro Koizumi visiting the Yasukuni Shrine.

Retirement

Kato retired from political office after losing his seat for Yamagata 3rd district at the December 2012 general election to Juichi Abe, an independent and mayor of Sakata.