im really confused that no one complained about enemies moving and attacking during dialogue and item pickups and reading journals
is it a bug or by design
It's by design, but I have to keep in mind it's by bad design. I just really liked the idea of rewarding careful play, or making hasty play more tense, but that doesn't really work when most items are either unique and/or have unique descriptions where the length of text read is unpredictable. That said, there are a couple of moments in the game where the player is practically guaranteed to get hurt if the game isn't paused, so I at least paused those.
If I make another game even close to the horror genre, I will definitely think about what I've learned here and minimize that as much as possible. Picking up items in that hypothetical game would be in a safe space that would then be made unsafe as a result, either by outright danger or by having the tension rise.