Honestly, I'm having a lot of fun with this conversation plus I'm really excited about what you're going to create.
If I'm not careful I can write long comments to you infinitely XD.
But I'll stop for our mental health and because this thread of comments is getting very long lol, but I'll leave you my twitter so you can send me DM if you want to hear more of my long comments or need the point of view of someone who has I've seen a lot of youkai anime and Japanese history (It's @Loka4v).
P.S (And this is the last thing, I swear): The Japanese at that time were a bit British, in the sense of classism, honor in following your role, that blood is what matters most, and super racist.
Basically, simply because Kyū is a "demon" it will be enough for hatred and suspicion, of course if Kyū were a god or a descendant of a god (Or the same if he was a renowned youkai) it would be another story, so I would make Kyū of a humble origin and that he had a conflictive or criminal past (Basically that he almost became a demon), and that should be enough for others to hate him.
Of course they wouldn't hate that he served Mairō since that would be a symbol of power and strength to the family and Mairō (There are many types of youkais, and some if you kill or subdue them, they are considered symbols of power for you, an example were the Tengu who are very competitive and if you beat them in a competition they rewarded you), but they would hate that Mairō treated Kyū well, respected him, and gave him privileges, since in their eyes "a servant (or dog) shouldn´t be respected or rewarded for being loyal and serving well since that is their role, rather they should be grateful to serve a renowned family like ours, that will give honor to their mediocre existence"...
Seriously, at that time everyone was very classist, what mattered most was your honor, blood, and family, in the sense that if you screwed up your whole family screwed up with you and if you succeeded your whole family triumphed with you (And if you succeeded but it was discovered that your family was poor or criminal, you lost all that success overnight lmao).
A good example was that if a criminal was caught and executed, their children were treated as if they themselves had committed said crimes, and it was expected that they would end up committing them too when they grew up (And of course if nobody help children or give them a work when they grew up, they would end up becoming criminals to survive, and the prophecy is fulfilled lol).
The case, don´t worry, it is very easy at that time to create problems so that Kyū isn´t accepted XD.
(By the way, sorry for the long comment, I really tried lmao)