Continue up the slope to the right. After defeating an enemy, collect the materials on the left. Lowering the ladder ahead will bring you back near where you obtained the second medicinal herb. Now, go down the ladder and head to the right.
Climb over the wall to deal with the enemies below.
There is a purple item in the room on the left.
In the upper-left corner, you can see a self-destructing fat enemy. There's some Dust nearby that you can collect.
Next, head towards the waterfall ahead and use the Kusarigama to retrieve materials and the treasure chest from the wooden platform above.
You can obtain Black Stone Fragment #3 from the treasure chest.
