Fusion
From Yo-Kai Watch Wiki
Fusion creates a new and powerful Yo-kai by fusing 2 existing Yo-kai or 1 Yo-kai and an item. Players can perform Fusion by speaking to Mr. Zen at the Shoten Temple.
Fusing 2 Yo-kai
12 new Yo-kai are created by fusing 2 Yo-kai. The level of new Yo-kai is the sum of source Yo-kai divided by 2.
Fusing 1 Yo-kai and 1 Item
16 new Yo-kai are created by fusing a Yo-kai and an item.