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In this period, Manila already served as a main Spanish settlement for 25 years. The city is small but it is well-protected and public institutions are increasing. It is the seat of the archbishop and the dioceses. Governor Gomez Dasmariñas writes to the King for more missionaries. Manila is safe, and the whole Luzon is explored and subdued. Cathedrals and ships are completed. Due to higher prices, the natives are paying taxes in crop produce, not in cash.
Faranda, an ambassador from Japan for the emperor Hideyoshi, arrives in Manila. He says that he wants peace between Spain and Japan, and he asks for Franciscan missionaries to be sent there. Though, there are still rumors that Japan is planning to capture the islands like it did in Korea. Dasmariñas sends a Franciscan priest to the emperor. The emperor replies with a letter, though sounding peaceful, contains covert threats and asking for gifts as tokens of peace. The council on war sends a careful reply, and also sends a message to the King in Spain. The governor distrusts the emperor's claim of wanting peace, and instead did more efforts to fortify Manila. Carbajal, a captain who went with Franciscans to Japan, reports to the King about the prosperity of the country and recommends starting trade there. Later, the situation calmed down when the Franciscans were sent.
In other parts of Asia, a conflict is arising between Cambodia and Siam. The governor sends a letter to the king of Cambodia to offer assistance and they eventually sent aid, since the Cambodians have protected Christian missionaries there. Though later, it was unsuccessful.
Figueroa was sent for the conquest of Mindanao but was killed there.
The governor was killed by Chinese rebels in a ship while travelling from Cavite, and was temporarily succeeded by his son Luiz Dasmariñas. Francisco Tello was appointed as the new governor and is instructed not to meddle in religious affairs. Tello likes Manila and sends Juan de Ronquillo to continue the pacification of Mindanao. A contest ensues between the natives and the Spaniards there, and Ronquillo failed to conquer them and instead negotiated a peace treaty. They see Mindanao as a poor region useless to Spain.
The Augustinian visitor-general Francisco de Ortega reports to the King about: the islands, their size and population, the number of the religious working in each, and how much more are needed. He asks for more troops to Cebu so that it could rise to the rank of a city.
The treasury officials are suspended and investigated for wasted money. Some affairs are in disarray due to the death of Gomez Dasmariñas, and the King re-establishes the Royal Audiencia. Bishop Salazar went back to Spain.