After ending the big battle between Yo-kai in the past, you meet the Yo-kai who caused the conflict to begin with.
Finding Master Nyada
Go to Harrisville Station in the past, and ride the train to Old Springdale. North of the station, talk to Ray O'Light. After the cut scene, go west to Galleria Boulevard (where Shopper's Row is in the present).
Talk to Nathaniel/Kenny, who is in the middle of the boulevard. During this cut scene, you find out that you need to go to Mt. Middleton in Harrisville.
Go back to the train station and take the train back to Harrisville Station. Then talk to Mirapo to warp to Harrisville. Then go north to Mt. Middleton. Talk to Master Nyada.
It's a Hose Thing
Now go north into Mt. Middleton. Go north and climb the vine, then talk to Master Nyada.
Nyada's Trials IV
Talk to Master Nyada to start the first trial. You will be warped to the Harrisville rice paddy area. You can see Master Nyada's location on the map, and he will continuously run even if you are not chasing him, so just wait for him to run to you.
Nyada's Trials V
Go north, climbing two vines, and continue going north until you find Master Nyada again. Talk to him and he will explain the next trial. If you are ready, talk to him to start.
One cat is in the south gate of the fence, one is behind the well, one is behind the house on the right, one is on the right side of the north rice paddy, and the last one is on the west side, behind the stairs leading to the riverbank. To reach this last one, you will have to walk onto the small cement block to the left of the back yard to climb up onto the fence, then go south along the fence to get down, and then go down the stairs to the riverbank and check behind the stairs.
Nyada's Trials VI
To do the final trial, you need a Rank A watch. If your watch is not yet Rank A, you will have to go back to Timers & More in the present and complete Mr. Goodsight's test to upgrade your watch.
After your watch is upgraded, go back to Mt. Middleton in Harrisville in the past and unlock the Rank A gate.
Go north to the summit of Mt. Middleton and talk to Demuncher to start the battle.
The Hose Comes In Handy
Go south to return to Harrisville, then go to the south part of the area and talk to Mirapo to warp to the station. Ride the train to Old Springdale, then go northwest into the tunnel to return to Flatpot Plains.
There will be a cut scene when you arrive, and then you will have to fight Unfairy.
Bonies and Fleshies Unite!
After you defeat Unfairy, there will be a cut scene, ending the chapter. This starts the next chapter, Back to Normal!