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I see no reason for this "genre" listing to exist on MAL. First of all, demons are simply an element of the Supernatural (it's even in the description here) genre and also is often contained in the Fantasy genre as well, which are both legitimate genres. Given the setting, all anime and manga containing demons in them, should be either labeled as Supernatural or Fantasy. There is no other genre based on the type of supernatural beings appearing in them, such as Angels, Witches etc. which are rather frequent in anime and manga, because this is what the Supernatural and Fantasy labels are for.

Agreed. It's a weird genre to be listed but I don't mind it existing here.

And "Supernatural" isn't a genre either but a common element of mystery, fantasy or horror genres. So it could be scrapped as well.

It's not a genre. You put the quotes around the wrong word for this purpose. Further on, it is far from being the only one, many of the things listed on MAL as genres aren't really genres. Best think of them as tags - then you can mix genres, themes, settings, fetishes and whatever else without getting bogged down in conceptual mire.

I've been wanting to work on genres, but it's not high on the priority list since it's not actually affecting site usability.