The substories don't pop up in chapter 3 until you finish your encounter with Fei Hu and get the Slugger Style.

#51 - Rise of the Dragon
Head to the far east of Shofukucho St. near the taxi, and someone will try to get your attention. At the north side of the street is a guy hiding behind a pillar. Speak to him, and you'll learn of his predicament. You'll learn of the "bontan hunter" who hangs out near Magutako. Head over there, and you'll find a VERY familiar looking blond kid (if you've played other games in the series). He's a tough customer with a lot of health and power, so don't be afraid to get tough with him. Afterwards, you'll have a nice conversation with "Ryuji-kun" and his friends. Return to Peter Pantsless and give them back. Head back to Magutako to close out the substory.

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