Keiichi enters the storeroom with Shion Tanako Miyo, which not only contains an ornate statue of Oyashiro, but also a wide variety of very suspicious “ritual tools”. Clearly relishing every moment of freaking Keiichi the fuck out, Miyo tells them the tale of Onigafuchi, AKA “the demon’s abyss”—the original name of Hinamizawa.
When man-eating demons attacked the townsfolk, Oyashiro intervened, but not by killing the demons. Instead he gave them human forms so they could coexist with humans, and the gene pool of the town mixed from that point on through the generations.
Because the residents of Onigafuchi were descended in part from man-eating demons, they every so often went to other villages to kidnap human sacrifices for Oyashiro…making the “tools” in the storeroom more like…cooking utensils. We even learn the wata in watanagashi can mean both “cotton” and “entrails”…which is what were originally “drifted” back in the day.
It may be a couple weeks after Halloween, but Higurashi decided to whip out one of its spookier scary stories for this episode. Miyo herself is hard to read: is she legitimately overwhelmed by excitement upon discovering this motherlode of killing tools, or intentionally hiking up the creep-factor for the benefit(?) of Keiichi.
In any case, Shion touches the statue and its head slides off and splits in two…which was never going to be a good thing! Tokitake checks in on them, then leaves with Miyo to catch the end of the festival. Shion also takes her leave, making Kei promise not to tell anyone where they were or what they did. Kei reunites with Mion, Rena, Satoko, and Rika, who wonders if he saw her dance; he lies and says he did, but needlessly adds she made “no mistakes”, when in truth she apparently did.
Mion takes Kei by the hand and asks if he was hanging out with Shion, Tanako, or Tomitake. He lies again, and says he wasn’t. Finally, Detective Ooishi asks him if he’s seen Tanako or Tomitake, and mentions that Shion and Mion’s father is a prominent yakuza head. Kei lies once again…but Ooishi knows he’s lying.
Later that night Kei gets a call from Shion, telling him that Tanako and Tomitake have gone missing. While she claimed to be only joking about the four of them being the top candidates for Oyashiro’s curse, the call and her concern reveal otherwise. The curse is real, two of them are already missing, and they may be next. Kei lashes out, claiming he has “nothing to do” with any of this, and Shion hangs up on him.
Keiichi can plead ignorance and innocence all he wants; he did go inside that forbidden storeroom, learned the truth about the village and its deity, and has done nothing but lie about it ever since. It’s clear he’s freaking out to this degree because deep down he knows he fucked up.
The next day at school his friends note neither he nor Mion got much sleep last night—would you if you knew the curse could be coming for you? As Keiichi sulks, Rika comes to pat his head and ask what’s troubling him, and Kei finally owns up to what happened—albeit with a pathetic attempt to make it “rhetorical” and distanct himself by describing the four of them as “bad kitties”.
His story makes Rika laugh and speak in a voice Kei’s never heard from her before, and when he looks at her, her eyes are glowing red. She tells Kei not to worry, because there’s no point: he, she, the world, are all finished anyway. He should’ve just watched her dance…blissfully unaware that the cotton in the ceremony represents the entrails of human sacrifice.