Well...
They are in an inn in Geniku, which is a small town/village. Yes, they are in the inn, well they have just left it probably technically. Since you used the word city, I'd imagine you would be at the Town of Beginnings, the starting place, since the size is large enough to be classified as one. Well, there is also Fujiwara and Minako, I believe, are at Horunka Village (Since they only said next town, which, the closest one to The Town of Beginnings is Horunka) 
And they are just outside the village. Well, it's up to you who you want to interact with [@Leolycan]