A ghost that lives in a toilet isn't scary because of the setting. It's scary because you know exactly where to find her, and you might already be sitting there. The movie trusts the legend completely, never explaining it away or softening it. By the time you understand what Hanako actually wants, the joke of the premise has already turned into genuine dread.
Toilet no Hanako-san is a short horror film from 1996, adapted from a Japanese urban legend. It is a single, brief feature that brings a piece of Japanese folklore to the screen for viewers drawn to supernatural scares rooted in popular myth.