Go down the stairs and talk to the old lady. Go outside. Look around the area. Find a save point and a teleport. Follow the path to find your friends. Now approach the save point of another scene. Run towards the path that leads out of the town. Examine the tree in the center of the town. You will fight it, but there's no way for you to win.
Go downstairs again and enter the inn. After a scene with Kluke go outside and head for the moons that you see in the distance.
Another mini-game is upon you. All you have to do is to tap A button. You will have to fight the evil version of your own shadow. Attack it until the Corporeal option is unlocked. Use it to instantly kill this enemy.
After some more scenes you'll be able to confront the evil tree.
Boss - Eat Yeet
This way the battle is much more sensible. Shu is the only character that's fully capable of fighting, so concentrate on using him. The best attack you can use here is Flarus Sword.
HINT: If you can do this, equip Shu with Steal/Loot ability (Assassin class) and use it on the tree. This way you'll obtain an item called Black Belt - it doubles the SP gained from every enemy (a must-have when mastering the game).
When you defeat the tree, you can leave the village through the forest.
HINT: Remember that only Shu is fully capable right now - other characters can only use items in combat.
Near the entrance there's a chest with Shadow Crystal in it. Reach the end of the path and you'll enter the forest. Take a Grand Emerald from a chest and go right at the junction. You'll find The Way of the Thief and Flower Shard there (use Shina Sword to defeat the giant ghost), as well as Crystal Bracelet and Ancient Feather.
Get back to the junction and activate the mechanism in the middle. Go through the newly opened passage. Along the way grab Repeater Weed and Power-Swap Dart from the chests. Toripo awaits you ahead, so buy some hearts from him if you feel like it. At the junction take left, where you will find a spell Lv 6 - Curse and a Crystal Earring. Now follow the path east (a scene along the way). Go around the path to find Iridescent Wind and Flawless Emerald.
Follow the path right that leads "up" the map. There's a Mirror Necklace. Get back to the junction and take the path east. Defeat another ghost and take Sacred Tree Shard (there's Grand Amethyst in a chest nearby).
When you're back to the round path, go south. There's a chest with green barrier on it (you can deactivate it, remember?). Inside you find Stone Shoes. There's also Sleep Powder in a chest nearby.
Get back to the round path again and activate another mechanism. In the next part you'll find Part of Eternal Engine and Crystal Ring. Also, there's an exit.
Grand Snow Fields
As always, there're numerous enemies to be trained on here. Your party isn't battle-ready for now, so just head to the village. It's to the south-west (looks like a narrow mountain pass).