1) Try punching really hard during the first phase (less debuffs it can inflict on you).
2) There's a consumable item at the village that increases some stats by two during a battle. Use it to counterattack both faith and will debuffs.
After another couple of trys, I just took the L and continued. On phase 2(?) I just... waited the Debuffs out. Took forever, but I don't think you can lose there yet. However I still couldn't out heal, and took half my HP in damage from one hit once I entered the actual fighting phase. I dunno what exactly I'm missing there, but figured it wasn't worth grinding endlessly to win.
EDIT: If others didn't struggle here, I'll assume that either they've grinded more SP then I have, or... it's because all my Fetishes are basically maxed. Which I know I COULD reset them, but I don't want to have to grind them again to view the fetish scenes. And I didn't have a problem at all with spider lady.
Now that Chapter 2 is fully translated though... is the room in the bottom right supposed to still be vacant? I know there is going to be a Chapter 2.5 update or something, so my guess is that the monster for that room has yet to be introduced...