Grave of the Fireflies (火垂る の 墓, Hotaru no Haka) is a 1988 Japanese animated war drama film based on the 1967 semi-autobiographical short story of the same name by Akiyuki Nosaka. It was written and directed by Isao Takahata, and animated by Studio Ghibli for the story's publisher Shinchosha Publishing (making it the only Studio Ghibli film under Tokuma Shoten ownership that had no involvement from them). The film stars Tsutomu Tatsumi, Ayano Shiraishi, Yoshiko Shinohara and Akemi Yamaguchi. Set in the city of Kobe, Japan, the film tells the story of two siblings, Seita and Setsuko, and their desperate struggle to survive during the final months of the Second World War.

Based on this passage, where does grave of the fireflies take place? Let's give stream of consciousness first:
The relevant sentence in the passage is: Set in the city of Kobe, Japan, the film tells the story of two siblings, Seita and Setsuko, and their desperate struggle to survive during the final months of the Second World War.
So, the final answer is Kobe , Japan.