Question: The term is [妖精](https://zh.wikipedia.org/wiki/%E5%A6%96%E7%B2%BE), which can be translated into English as "fairy", "elf", "goblin". As noted, the Japanese literature uses 妖精 to describe the European fairy. The English translation of 白骨精 in 西游记 (Journey to the West) is "white bone demon". So, this word can be translated into English as fairy, elf, goblin, or demon. 

Let's say an author is writing a fantasy story in Chinese first, using terms that are understood in a Chinese society. Then, the same author translates his/her own story into English and faces a problem. Which term should 妖精 be translated into (fairy, elf, goblin, or demon)? Or are the differences between the terms negligible, so the author can just pick a random one and go with it?

Answer: 
Does it have to be an actual translation? Translations don't always work, as synonyms get lost in translation. As you mentioned, there is no English word that can mean "fairy", "elf" **and** "goblin". 

Translating to any of the options will mean that you lose out some of the ambiguity. Maybe it's important in your story that the creature's alignment is unknown. If you translate it to "fairy", readers will interpret it as good. If you translate it to "goblin", readers are liable to interpret it as conniving or evil. You can't retain the ambiguity.

Instead, you can simply pick a name without any inherent meaning (or suggestion about alignment), and then define the creature through observation rather than naming. 

The Wikipedia page you linked has an English variant, where the chosen name seems to be [**Yōsei**](https://en.wikipedia.org/wiki/Y%C5%8Dsei). Why not use that, so you don't bias your readers and are actually able to assume direct control over steering the viewer's observation; as opposed to relying on existing words with Western connotations? 

* **Fairy** = small and benevolent. Has a physical shape but they are inherently magic.
* **Spirit** = ghost or ethereal entity, lacks physical shape.
* **Elf** = humanoid creature with magical affinity and often has an expanded lifespan. Often acts as a counterpart to the human race. Alternatively (but less commonly), very similar to a fairy but not *as* magical in nature.
* **Goblin** = Conniving, tinkerer, likely evil (or at least lacks moral principles). Humanoid, but lesser to elves and humans.
* **Demon** = almost definitively evil. Possible religious connotation (demons are to the Devil what angels are to God; henchmen). Known to possess humans.

These are in no way guaranteed traits, but if the reader reads the word, they are liable to make inferences as to what the creature is like.

Because 妖精 can mean all of these things *at the same time*, the reader is therefore unable to make a choice between the listed interpretations. They must assume a generalized shape. But as English lacks a word that encompasses all definitions, you're much more likely to have your English readers pidgeon hole your creature by the common definition of the word you chose to use.
That depends on how much this character is important to the whole story and how much chinese feel you want to retain.

If the character is very important and no english word can express it without distorting its essence, you should invent a new word in english for it. It may be the literal pronunciation of the chinese term or something else. You must give your readers enough details, so that they can picturize it uniquely in their minds.

If the character is not so important, but still cannot be represented by normal english words. You take an already existing word and change its definition in your story. You may define that fairies in your story don't have wings and look ugly. It'll work as long as you maintain consistency.