After you defeat the Ghost Woman, Kurobei asks you to visit the Cat Boss, Koban, on Shikoku Island.
Warlock Zone II: Shikoku Island
This area is full of people wearing Hyottoko masks, and there are Tosa dogs, and officials. You might sometimes see grannies out for a walk. collect them to get $50 but if you hit them you lose $100.
You can go back into the travel agency but you'll just be told about the upcoming festivities and such. There is also a house to the east where you can find out that the Hyottoko are strange this year.
To proceed from where you started on Shikoku, go south through the only exit. This area has drunken men that throw small sake bottles at you. If you don't have at least 3 sandals, go all the way to the west (you can visit a house on the way) and go into the store to buy more sandals.
Outside of the shop, go east, then north to reach a dead end where there is a house, a sauna, and if you hit the wall to the left of the sauna, a hidden area. In the hidden area, the leftmost item is $50, then to the right of that, $100, to the right of that a scroll, to the right of that a lucky cat, and at the rightmost side a gold cat that increases stamina by 2.
When you exit the hidden area you end up to the west of the hotel. Go east to the hotel if you wish, then go north to find an arcade. In the arcade, you can pay $100 to play Tear Down the Wall, which is like Arkanoid, or Hockey. If you play Tear Down the Wall, you can start by choosing a temporary power up: Speed Down makes the ball move slowly at first, Laser lets you shoot a laser at the wall if you press a button, and The Wall puts a wall below the paddle so even if you don't bounce the ball off of the paddle, you won't lose. Hockey requires two players. It's an Air Hockey game where you have to bounce the ball back and forth and try to make the other player miss the ball to earn points.
When you're ready, leave the arcade, and you can optionally go north to where there is a restaurant where you can recover your health.
Go south again until you are to the right of the hotel. From there, if you go west, then north, you will find the Jujutsu school. You can only use Jutsu techniques in areas that are guarded by a giant tanuki statue, and you lose the Jutsu when you move on to a new zone.
Technique number 1 lets you fly around for a short while. Technique number 3 summons a tiger for you to ride around on temporarily. If you jump, the tiger will bite the enemies in front of you. While you train, your stamina will go down, so be prepared to go to the restaurant or sauna or inn to recover afterward.
After you have learned the Jutsu, press START and you can choose which of the techniques is active. That Jutsu icon will replace your character's icon in the upper part of the screen. If you are in an area guarded by a giant tanuki statue, you can use your Jutsu by pressing X if your "POW" is greater than 0. Collect 10 scrolls to earn one POW. There are four different techniques per character.
To the west of the Jujutsu school, there is a house, but otherwise there is nothing of interest here except a bridge where you will be attacked by Samurai, so go south when you're ready to move on.
Go west and you find a Logbook Shop where you can get a password to continue your game, an Employment Office where you can play minigames for money, a general store that sells sandals, straw coats that protect you from damage (you can have up to three) and bombs. West of that, there is a house, and a lottery.
In the lottery, you can choose Tiger, Cow, Turtle, or Bird. Then you can choose a letter, A, B, C, or D. After you choose, a rapidly-changing number will appear. Press B to stop it. The number will always match one of yours, so the third prize of $50 is guaranteed. Next, press the button to stop the number, then press the button to stop the letter. If you match both, you get the second prize of $200. Next, press the button to stop the number, then press the button to stop the letter, then press the button to stop the animal. If you match all three, you get the first prize of $1000.
When you're ready to move on, go west from the lottery building and go south to reach the festival area. There are Hyottoko people doing the Bon Dance. Defeat all the dancers, then the drummers will jump down and run into the opening in the platform. Go inside, talk to the giant tanuki statue, and go to the right, where you will battle the Lantern Man.
Lantern Man
There are pots on ledges on either side of the room that you can hit to get items. The top left and bottom right pots both contain lucky cats. The bottom left pot contains three coins, worth $30. The top right pot contains a heart that restores all your health, so you might want to only use it if you are low on health.
The white lanterns on Lantern Man will turn around and spit fireballs that move in a straight line. Lantern Man will sometimes jump left or right. Jump onto the platforms on Lantern Man and hit the white lanterns until they have all been destroyed. After that, the red lanterns will start moving side to side. They will sometimes open up, and the enemy inside will spit a small flame that slowly follows you. Hit the red lanterns until they are destroyed, and then Lantern Man's face will be uncovered. At that point, Lantern Man will keep jumping left and right. Hit Lantern Man's face until he is defeated.
Koban Cat says Princess Yuki has been kidnapped, and you should hunt down the Otafu Army on Awaji Island.