This is a post for a future google search for Kobe, Osaka, and knitting, a search I made a couple weeks ago. The most useful hit for me was this blog post. I found this store in Osaka because of the excellent directions. I bought Noro Kujaku, a now discontinued yarn for ¥780 (currently about £5 or $8) and a yarn I can’t find in ravelry or online elsewhere for ¥280 (£2 or $3) . The second yarn was knit up into a furry hat that is extremely popular in Japan at the moment. I indicated I liked it and the woman working in the shop insisted I take the pattern.
The real find was in Kobe, however. Doi Shugei is a very well-stocked general craft store with the basement floor full of yarn. They had a number of Japanese brands I haven’t seen elsewhere. They seemed to be clearing out their stock of Noro, so I picked up Noro Kureyon for ¥515 (about £3 or $6) and Noro Silk Garden for ¥672 (£4 or $7). The shop is in one of the large arcades near Sannomiya station. They have an English translation of the address on their site.
There are also a large number of fabric and yarn shops beneath Sannomiya station. Walk towards the city away from the station under the rail lines, the shops are across the street from a block of nothing but Pachinko. They seem to be only visited by the locals and I doubt you’d find any English, but you might be able to find a good bargain.