All details considered, it seems like the mountain god appears every 22 or 40 years and is fed animal carcasses until it's full. Then it's attracted to the shrine (which is basically a warehouse). There the blacksmith, or someone else, chops off its head. The head is taken to the shrine warehouse. I reckon the head also resembles one of the things it was fed the previous time. So, despite getting beheaded, it's reborn every 22/40 years nonetheless as long as there are people who believe in it. However, modern times have no need for such beliefs, which is why, along with the village itself being replaced by a hydropower plant water reservoir, that was the last time the mountain god appeared.
Other than that, I reckon the village chief had a thing for Hisa, but since she was going to marry the blacksmith, he, and his goons, decided to murder her, as well as some others in their way, by arranging an "accident" where the mountain god reached humans. Since the shrine warehouse only seemed to have animal heads, it's reasonable to believe the mountain god doesn't normally get to eat any humans, so what the chieftain did with human sacrifices must have been abnormal.