Where do you find the Phoenix Mirror? The best place to begin is your father's room - in his desk drawer, you'll find a Mysterious Key, if you haven't gotten it already.
There isn't anything else in the room that might be a clue, so go to the Dojo. There's a long, locked box at the wall opposite the door - you can open it with the Mysterious Key. In the box is a sword missing its handguard. You can carry the sword around the dojo, but Ryo will set it down before you leave.
Along the same wall as the sword box are two scrolls side by side. You can take them off the wall, and there are some strange indentations in the wall. Behind the right-hand side one is a narrow slit, and the lef-hand one covers a strange symbol.
The sword fits into the narrow slit on the right, and seems to click into place. The question is, what do you do with the other feature on the wall?
Back in the house, talk to Ine-san. She'll tell you that Fuku-san wants to speak with you - he's back outside at the tree by the dojo. He confesses that he's told Ine-san everything about what Ryo's doing, so Ryo will go back towards the house to talk to her. She's been standing at the corner of the house, and has overheard everything you just said. She apologises for eavesdropping, and Ryo gets the opportunity to ask about the Phoenix Mirror.
She'll tell you that she's never heard of it, but that your father had something put into storage at the Bunkado Antique store in Dobuita.
On your way through, go into the shrine to see the kitten - you'll get a short cutscene of Ryo and Nozomi being awkward around each other.
Entering Bunkado Antiques will trigger a cutscene with the store's owner, an old friend of Iwao's. He'll talk about your father for a while, then remember about Iwao's item that he's kept in storage: a sword handguard.
The handguard is a Hazuki family heirloom passed down to sons on their eighteenth birthday, and has been kept carefully polished by the antique store owner since Iwao asked him to look after it. The shape should look familiar - you've seen an indentation somewhere that very closely resembles it back in the Hazuki Residence, so make your way back.
It might be an idea to call into the Tomato Store for a lightbulb (they’re only ¥90) - it may not make much sense now, but it will save you some back tracking fairly soon.
On your way home, Gui Zhang will appear - it seems he's been following you. After receiving no denial to the accusation that he's working for Lan Di, Ryo will enter a Free Battle with Gui Zhang.
After a brief scuffle, Gui Zhang will stop fighting and announce that he has been appointed by his father to act as Ryo's bodyguard. The Chen family business would suffer if the Phoenix Mirror were to fall into Lan Di's hands, so they can't take any risks of that happening. Unfortunately, the conversation is being watched by a creepy skinhead from the roof of the Sakura Heights apartment block. This information is very valuable to Lan Di, and the skinhead will be rewarded for finding the Mirror.
After that short cut-scene, resume your journey home.
Fuku-san is sweeping the pathway, and doesn't know much about the handguard. After talking with him, Ryo will go inside to speak with Ine-san (she's in the Altar room), who's aware of the significance of this handguard's shape.
A snow circle, two stars and a sword: the Hazuki family crest.
If you haven't already figured it out, the handguard joins the sword on that section of wall in the dojo. Put it in place, and something will click - the wall now rotates, giving you access to the dojo basement.
Going down the ladder, you'll discover that the basement is too dark to see anything - you'll need a light before you can get far from the ladder.
Back in the Hazuki house, you'll find a flashlight in the cupboard under the phone in the hallway, but even that's not a lot of help. You can look around the basement and pick some things up (there's a scroll for the Stab Armor move), but there doesn't seem to be much to do - you'll need more light.
There is a lightswitch on the wall, but you'll need a bulb before you can use it. If you bought one earlier you can put it in by looking up at the socket hanging from the roof, otherwise you'll have to go to the Tomato Store in Dobuita to buy one.
Once you've got the bulb installed, flip the light switch and you can see without the torch.
On the left-hand side of the basement (as you look at it from the door), there's a low set of shelves with some strange scratches on the floorboards nearby. Look closely at the scratches, and Ryo will realise that the shelves must have made those markings. You can pull the shelves back to reveal... a discoloured piece of the wall?
On closer inspection, you'll discover that the discoloured section makes a different sound when Ryo hits it than the regular wall - you just need to break through it.
Look around the basement, and you'll soon see something that might help you get through that piece of wall. Pick up the axe and go back over to the wall - focus on the lighter section and hit to smash it in.
Once that's taken care of, Ryo will open the small Hazuki-crested metal door behind the broken plaster and pull out a small wooden box containing the Phoenix Mirror.
Back in the dojo, Fuku-san will come in to see what you've been up to and gets rather alarmed by the strange way Ryo acts around the Mirror, thinking you've been possessed by a cursed artifact.
It's time to get back to Master Chen, though - head into the house and phone ahead, then make your way to the harbor and the Old Warehouse District.
Sakuragaoka and Dobuita
On your way through Sakuragaoka, Yamagishi-san is in the park - you can speak to him for some talk about the newly-discovered mirror. In Dobuita, you can call into a couple of other places to have the mirror inspected. Xia Xiu Yu in Russiya China will give you a history of the Phoenix in Chinese legend, while Oishi-san in Bunkado Antiques takes more of an interest in the mirror's construction.
Master Chen is impressed with the mirror, and goes to great lengths to talk about where it came from and how it was made - as well as what Lan Di plans to do with the Dragon and Phoenix Mirrors. According to a story told to Master Chen by Jhu Yuan Da, when the Dragon ascends and the Phoenix descends, the gates of Heaven and Earth will open and the ancient Chinese monster Chi You will be resurrected to devour the Earth.
The discussion is interrupted by Chai, the creepy skinhead from Sakuragaoka. He grabs the Phoenix Mirror from Ryo's hand and leaps back to a pallet on an overhead crane, where he gloats about the reward he'll receive from Lan Di. Guang Ji starts to run up the stairs to apprehend Chai, but Master Chen directs Ryo to hit a button connected to the crane.
The crane starts to move and Chai drops the mirror, which Ryo quickly picks up. Enraged, Chai jumps out the window at the back of Warehouse #8, leaving Master Chen to explain who he was.
Chai is apparently connected to the Mad Angels, a group of harbor thugs who are involved in brokering a deal with Lan Di's Chi You Men cartel. Ryo demands help in finding the Mad Angels and Lan Di, but Guang Ji insists that Lan Di has almost certainly left for Hong Kong already.
Not to be deterred, Ryo asks for assistance in following Lan Di to Hong Kong, but Master Chen refuses point-blank to help you in any way, advising Ryo not to waste his life on revenge.
Master Chen leaves, and the game will take you back to the Hazuki Residence to save/sleep.
In the morning, Ryo will have his bank statement - but his paltry savings aren't going to be enough to get him to Hong Kong. He's going to need help.
Fuku-san is in his room, and offers to help you talk to Ine-san about getting to Hong Kong. In the kitchen, Ryo tells Ine-san that he's thinking about going on a trip, and she reacts favourably to the idea of a vacation for Ryo. When she asks where you're thinking of going, Fuku-san jumps in eagerly to tell her that Ryo wants to go to Hong Kong to track down his father's killer. Ine-san is rather upset by this news, and angrily exits the kitchen leaving an exasperated Ryo to call Fuku-san an idiot.
You're going to be on your own - time to look around local travel agents to get an idea of Hong Kong ticket prices.