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: 
The differences between 'fairy', 'elf' 'goblin' and 'demon' are *not* negligible. The fact that a dictionary offers you all of them, or that all have been used in different setting in the past, does not imply that all those words mean the same thing, but that in different situations or contexts, they can be used to describe a Yōsei. (That's the transliteration of the Japanese creature you wish to refer to, right?)

Let me reiterate that: in a certain subset of contexts, 'Yōsei' best translates as 'fairy'. In other contexts, it does not. In a certain subset of contexts, 'fairy' best translates as 'Yōsei'. In other contexts, it does not. Their semantic fields do not wholly overlap.

To find the right translation, you need to have a good understanding of the differences between the various possible terms in the target language - in your case, the difference between 'fairy', 'goblin', 'demon', 'elf', 'spirit', etc. Then, you can pick the word that best fits what you're trying to convey in your story.

Alternatively, you can use a transliteration - 'Yōsei'.

What are some considerations for or against using transliteration rather than an (inexact) translation?

* First, is your Yōsei a major story element, or something mentioned in passing? For something mentioned in passing, it makes less sense to go through the effort of transliterating, and demanding of the reader to learn what a Yōsei is. (You would have to provide the information - sending your readers to Wikipedia is a no-no. But learning is still a mental effort, a small distraction from the story.)
* How different is a Yōsei from whatever word you picked as translation? The greater the difference, the more reason to use transliteration.
* Who is your target audience? If you're writing for children, it's better to stick to familiar words.
* How strongly is your story localised? If your story is very explicitly set in Japan, if there are many other cues that set your story in a specific location, 'Yōsei' fits into the setting, while something as European as 'fairy' does so to a lesser extent.

One thing to remember, if you choose to transliterate rather than translate the term: your English-speaking readers are unlikely to be familiar with Yōsei. You'd have to provide them with the necessary information. This is preferably done by means of the story itself, but if that doesn't work, a footnote is an option. Footnotes are often used in translations, in similar situations, but if you're translating your own story, you can alter it a bit, to incorporate the necessary information into the text.
I suspect you may be missing one - the Aos Sí (or Sidhe) from Irish mythology. They are the 'fair folk' or the 'lordly ones'. They can be beautiful and hideous. They predict/cause death. They are relatively benign, unless angered. They fit all of fairy, elf and demon. 

One Sidhe would give artists and musicians their inspiration - at the cost of their life. Others would steal children. 

Modern (IE Tolkien/D&D) elves derive from this as does fairies, banshees, leprechauns and others. Over time these usages have become biased towards cartoonish niceness. 

I'ld go for White Bone Demon or White Bone Elf depending on how potentially evil they are. 

(would post this as a comment, rather than an answer)