A euphemism used to describe people of Okinawan descent. It is due to the fact that people whether part of full Okinawan tend to be short, brown, and hairy. See also Ewok
Person 1: "Look at Ikei! That Okinawan kid is so short, brown and hairy! "
Person 2: "Yeah, that's why we call him a Mogwai."
Person 1: "Are you going to the Okinawan Bon Dance tonight?"
Person 2: "Yeah I'll be there with the rest of the Mogwais"