After the cutscene depicting the village's destruction, you'll be thrust into combat against waves of ninjas. Utilize your newly learned techniques, especially the Flying Swallow and Izuna Drop, to clear them efficiently. Head towards Murai's dojo. Inside, you'll face Murai himself. This is a tutorial boss fight. Murai is slow but hits hard. Block his attacks and counter with quick combos. He's vulnerable after his heavy overhead swing. Focus on dodging his grab attack. Defeating him completes the chapter and grants you the Dragon Sword.
