I have a character training to be a samurai, and I can't find the baton. I found a small graveyar near Shurugeon and killed some spirits there, but I didn't get the baton. Am I in the wrong place, or something else?

Check out the small side cemetery (to your left as you enter the large one). Within is the Spirit of the Samurai, that when killed, will drop the baton. Sometimes it's hard to see as it may be partially obscured by a headstone.

the cemetery is actually outside the castle. swimm the moat south through the tower. after the tower you turn left (east) and there is the cemetery.