Master.Pug, you get it from Tycoon Castle at World 1, when you talk to the Chancellor and he takes you to that place. He lets you take some stuff from treasure chests, then he says something like "This staff has been our national treasure for a long time now. I want you to take it, Princess Lenna", and then he gives you that staff.

I'll give you a hint: the best usage for that staff is hitting your own guys with it, or hitting undead monsters with it. Just don't use it on normal enemy monsters.