system
Given the following post, respond as if you're commenting on Reddit:
human
[Inuyasha] What happened to all of the fantastical aspects of ancient Japan (demons, magical creatures, etc.). I haven't seen any in the modern Japan where Kagome is from.
gpt
Some remain as seen with the Noh mask.  However, note that even Inuyasha's time was one in decline.  As mighty as Inuyasha and Seshomaru were they were shadows of their father.  Naraku was a unique circumstance of many weak demons combining and began assimilating/devouring other demons to grow stronger.  Inuyasha's power based on a fang of his fathered reinforced with his own fang fed powers of greater demons from before his time using demon forge techniques from his father's time.  

So you have new demons not being as strong as previous demons, in general.  Demons killing each other.  Humans whittling down on whichever demons "win" and getting more advanced.

By the modern age it is basically complete.  Much like the Elves, Ents, and like that settled farther West the end of the third age saw some stragglers, but eventually fell to Man.