If you are looking for the fightable Youkai version of Nue (NPC), please see Nue.
Nue is a Youkai that lives on the outskirts of Kyoto, but has magical properties that allow him to be invisible to normal eyes. He falls ill right after the Barrier surrounding Kyoto was knocked out and since Lady Shizuka was able to see him with her truth seeing eyes she decides to help him by getting a Pomegranate Liqueur from the Momijina in Ankan Forest.
Nue knows about the old history when the Kamikui were still roaming around and mentions that Kamikui were as populous as the gods in the land. Along with knowing about the past history, he is well known with the local Youkai showing the player and Lady Shizuka where to find an expert smith in smelting the legendary metal, Hihiirokane.
Nue first appears during the quest "The Nue and Lady Shizuka" in the South-West corner of Kyoto and stays there until the quest is completed. During the quest, "Repairing Benkei", he appears during dialogue to point out where to find a blacksmith who can work with Hihiirokane before disappearing again shortly after.