The Fishing Rod is an optional item; it is not required to complete the game. However, you must obtain the Fishing Rod in order to finish the sidequest to learn the Great Spin Attack.
1.The Old Wayfarer and the Mermaid
Sail to Bannan Island in the Northwestern Sea. Enter the house on the island to meet the Old Wayfarer and learn about his search for a mermaid.
Exit the house and kill all the enemies on the island: Ropes, Red Chuchu, and Yellow Chuchu. Then, search the coast for the mermaid.
When you see the mermaid, throw the Boomerang at her. Then, speak to the mermaid to learn that she is actually just a girl named Joanna in a mermaid costume. After speaking to you, she will agree to meet the Old Wayfarer.
Return to the Old Wayfarer’s house and speak to him. The mermaid, Joanne, is not present. The Old Wayfarer will suggest that she must have found a different man.
Leave the house and return to your boat. Speak to Linebeck to hear about his encounter with Joanne.
Return to the Old Wayfarer’s house one more time to find that the mermaid has arrived after all. The Old Wayfarer will thank you for uniting him with the mermaid and reward you with a Fishing Rod.