Chapter 2: Hayabusa Village
Chapter 2 is another very straightforward stage, though the enemies here will prove much tougher than the novice ninjas of the previous chapter.
To start things off, backtrack through the castle until you reach the point where you started in the previous stage. Instead of ascending the hill, go straight into the newly opened passageway. There are two treasures located nearby the elevator: the Art of the Fire Wheels Ninpo scroll (equip it right away!) at the top and a hidden chest behind the elevator at the bottom.
Proceeding forward, are some new enemies here - armored warriors who have slightly stronger defense than the ninjas from before. Jumping attacks are quite good for shattering their guard and leaving them open to further hits. You should also try to knock them down - it's much easier to off them when they're helpless on the ground, just begging to be stabbed. Once they're good and done, continue on down a steep slope and wade across a shallow river (be sure to check behind the waterfall and underneath the broken bridge for more treasures) to reach a new save point.
Head onwards to reach the Outer Village. There's a new enemy here - vanishing, teleporting ninjas who throw projectiles at you. The projectiles do damage even if you block them, so it's best to avoid them altogether by dodging - though that can be tough in the thick of battle. In order to kill these guys, you'll need to either try and attack them as they're charging to launch their attack, or wait until they attempt a close attack, block it and immediately counter. They're not too tough once you learn their methods.
Your goal here is to get inside the large building you see on the left, but before that, head northwards to find a statue head lying on the ground. Return back towards the entrance of this area and look around to find a small building containing a few statues nearby. One of them is missing a head. Walk up to it and replace the missing head to get a Life of the Gods for your trouble. Now, go towards the large building, jumping up the sides to reach the entrance. Here you'll find Ayane, a brief cutscene and a Bow weapon. Downtairs is a storage room with a few restorative items lying about on the shelves. There is also a Muramasa statue here, where you can spend the Essence you've collected to purchase various items and accessories. Feel free to buy a few extra elixirs, but don't spend too much - you'll want to save a few thousand to upgrade your Dragon Sword next chapter.
Exit this room to find a new outdoor area with a few more enemies that need a good hacking-up. If you want some bow practice, try aiming at the nearby bullseye targets after you've cleared them out. You'll get some nice rewards for successful shots.
The next area contains a mini-boss. You'll face off against a few horsemen here, two at a time, some with bows and arrows and another with a long spear he can stab and drag you around with. The best thing to do is stand close to the wall in a defensive position, waiting for one of the pair to approach you. When they stop to turn around, unleash a combo attack on them. You may hurt them enough to shock the horse, in which case you should definitely keep up the attacks. After the horse goes down, the rider will attempt to take you on, on his lonesome. Use the same strategies as you have on the other soldiers in this stage to defeat them.
But you're far from done yet. Use the new save point nearby to save your game, then prepare for the level's true boss fight.
Stage 2 Boss: Masakado
Masakado is very similar to the horserider minibosses you just fought a moment ago, but he's got a few more tricks up his sleeve - his horse can spit fire when it gets angry enough and he's got a bunch of those projectile-launching ninja soldiers as backup. As annoying as this may sound, those foot soldiers are actually very beneficial in this battle. Since you should know how to dodge and counter their attacks by this point, they aren't too big a hassle to take out and they drop Essence when defeated. You can use this Essence to restore your life, or to help charge up for an ultimate attack, which you can unleash when Masakado approaches. The important thing here is simply not to let your guard down for too long. Slash away at Masakado when he stops to turn next to you and either guard or focus on taking out his cronies when he's running away. You'll get a shiny new counterattack skill once you manage to put his old nag to sleep.
Things aren't finished yet, though. You'll need to save your game again and head towards the burning house of the clan leader. There are more fighters waiting around here to make your life miserable. It's a bit tough fighting the groups of them in enclosed areas, so try to lure them out into the open field to give you a bit more breathing room. Once they're gone, check around the vicinity of the house to find a hidden treasure chest, then cautiously approach the building. As you go up the steps, you'll be greeted by a blast of roaring fire - dodge quickly out of the way and then continue on to go inside the structure. In here are yet more soldiers and ninja sorcerers, along with more random bursts of searing flame. While the fire is an equal opportunity deathtrap for both you and the enemy, it's more likely to do a lot of damage to you than it is to them, so keep a keen eye on your surroundings and prepare to dodge immediately if you see the flames start to swell. After clearing out the enemies, do a thorough search of the house to find a chest with a Life of the Gods item. Pop outside to find Doku, the specter responsible for all this chaos.
You can try to fight Doku, but it's useless - you will fall to his might and this stage will end on a very depressing note. But it won't be the end... in fact, it's still only the beginning.