Kraken is the Queen of the southern seas, who had been turned into a dried squid by Astaroth. She is not fought at all, instead directly joining the party after being returned to her true form.
Defeat Queen Mermaid, then talk to her. She'll restore Kraken back to her true form who in turn joins the party.
Defeated by Astaroth off screen, Kraken was drained of her power and forced into a sealed form, a dried squid. Set aside from the other dried squids to make sure the party didn't accidently eat her, she was always listening to what was happening around her and waited patiently for the party to discover a way to restore her true form back to her. At first, the party thought that Poseidoness would be able to do so, and searched her out. However, she mistakes the parties intensions as mocking her, and fights the party. Afterwards, she regretfully states that she is unversed in healing, but suggests that Queen Mermaid would be able to do so.
Later on, after defeating Queen Mermaid, she does indeed heal Kraken and restores her form back to her.
Kraken: "Now then, shall I go on a rampage? A meal is most delicious after some exercise..."
Levia: "Kraken... This journey must have been very difficult for you."
Kraken: "I was turned into a dried squid... It was indeed a terrible misfortune."
Levia: "...For some reason, I'm feeling hungry. May I have one of your tentacles?"
Kraken: "I cannot agree to that."
Poseidoness: "Would you like to go out for a drink right now, Kraken?"
Kraken: "Sounds good to me! *glug* *glug* *glug*"
Poseidoness: "Waaahaahaahaa! *glug* *glug* *glug*..."
Kraken: "*glug* *glug*...Urp!"
Kraken: "Are you a Narwhal...? Your horn is still as majestic as ever."
Horn: "As expected, the Queen of the Southern Seas has a discerning eye. My large horn has first-class hardness and beauty."
Kraken: "It is indeed splendid... I would like to pull it out and decorate the undersea temple with it."
Horn: "Oh, come on..."
Kraken: "Queen Mermaid... I am indebted to you for your help."
Laura: "You shouldn't be concerned about that..."
Kraken: "No no, I must recompensate you in some way... Incidentally, do you like dried squid?"
Laura: "I don't eat it..."
Kraken: "It has been a very long time, Zenovia... Ever since you disappeared, the seas have become restless."
Zenovia: "But you and Poseidoness have maintained the peace... ...Isn't that right?"
Kraken: "What are you going to do from now on? It would save us a lot of trouble if you were to assist in governing the seas like before..."
Zenovia: "That is the work of the living. For someone who has crawled out from their grave, it is none of my business anymore."
Kraken: "I shall rule all of the seas!"
Kraken made a bold declaration!
...But no one was listening to her.
Kraken: "I'm getting hungry...if you'll excuse me."
Kraken is eating some food she stole...
Kraken: "I am happy!"
Kraken popped a party cracker!
...But no one paid any attention.
[Kraken uses Tentacle Flail]
Kraken: "Let me introduce you to my friend. Please get along with him."
Kraken presents a gift!