After leaving Bunyan, head North to find the entrance to Mt. Glaus. Work your way to the top until you find a bridge that leads to a small house. There you will find Rei. While talking to him, you will notice him saying he is stronger than the monster if he is by himself. This abiltiy will not be seen or used until after later in the game. Be reminded though that to use Rei's "secret" skill wisely in the future, you will need to learn the Influence skill from the Boss Goblin.
Anyway, after some chat, you will have time to rest. The morning you wake up, you will fight the monster that has been ramsacking the farms and stealing the cows. It's the Nue. No need to be serious in this fight though. You can defeat it simply and it will run away. Follow it to the top of the mountain and you will find a cave.
Simply follow the trail of blood left by the Nue. If you venture from the blood, you will find a roomful of cow carcass. Here you will find an invaluable Bent Sword. If you keep following the blood trail, you will notice it had stopped somewhere in the water. Upon leaving the room, Teepo realizes the Nue must have jumped into the water. Now, follow the trail of blood again and head to the other passage north of the cave. You will find human bones in here, inspect them for items. At the very end of the area is another cave enter it and find a river that leads to the previous room where the blood trail ended. Jump to the water and you will enter the room under it. Simply go straight ahead and you will fight the Nue for the last time. After you have defeated it, it will cover the cave right behind it. Walk up to it and inspect the whole.
In the cave past the dead Nue, you will find a nest of Nue cubs. They have been dead for a long time and the mother Nue hadn't realized it at all. After the sad discovery, leave the mountain and you will see Bunyan.