It's always better for you to make Original Content and IP. Not only do you own it legally, but you can franchise, make merch, make a sequel, profit and legally protect those profits. You have far less or these luxuries making a deviation or fan game.
Nintendo are pretty protective over their IP, but it's hard to sue someone if you can't prove they are harming your profits or potential future profits. Just because other people do it, doesn't give you any protection. Will you be sued? Very unlikely at this stage. The first step, would be a cease and desist. That's the first step, but by no means the last.
If this game becomes popular and you start making serious money from this, the stakes and likelihood of legal action both increase. You're shooting your future self in the foot.
Fair use is actually very defined and narrow in scope. Are you criticizing, educating or parodying the work in a transformative manner? Can you prove this? You also have to remember IP rights and Copyright not just for the work as a whole, but for each name, the title and the likeness to each character. Your georgraphical location is also not a shield to international IP and Copyright. You'd just be legally obliged to go to America to a court of Nintendo's choosing. And then automatically lose when you don't show up.
You should be fine at the moment. But you should be wary. If this project means anything to you, or you want to make money from it in the future, do yourself a favor and make it an original work.
(I'm not a lawyer and the above should not be considered legal advice in anyway)