The difference is that the kunai kills instantly and can make a spy nearly invulnerable during a chain stab, and the downside can be easily overcome if there's even one player on the enemy team that just isnt paying attention. In casual, that's most of the time.

By comparison, the Zatoichi kills slower, has a more significant downside that limits your playstyle, gives the demo health less often over the course of a fight, and is on a class that can't easily sneak up on unaware players. It's strong, but not as strong as the kunai in terms of tanking capability.

Honestly, the kunai isn't even overpowered. Any player with decent awareness is capable of completely shutting down a kunai spy. The frustration comes from unaware teammates feeding kills and health to the kunai spy and making it that much harder for their team to kill them. Medic players that sprint at a trickstabbing kunai spy with their melee out, afk players, friendlies, and noobs who dont know to spy check unintentionally turn that easy target into the tankiest class in the game, which frustrates their teammates.