It use to be more visible in Japan because people used fashion as a way to get seen. The magazines played a big part in it. People knew they would be in Harajuku taking photos on certain days, so people went to Harajuku to show off their outfits. Not just lolita but vk outfit and more.
Over time the concept of the selfie took over, people did more on their blogs, videos, photo sharing sites. So people didn't need to go to Harajuku to get in the magazines to be seen. And people began buying more online and looking at fashion online in Japan, so a number of the fashion designers closed their shops and focused on selling online. And the magazines lost readership because people were looking at fashion online and not in print. So the magazines stopped their print issues.
I've noticed more of a trend over the years for lolita items to be used in every day dress, like wearing a lolita coat with office wear, and less the "dressing up", at least in Japan. I know there are still lolita events, and brands still have tea parties and meetings. Lolitas still dress up and meet with each other. It's more like it is in other countries now than it was back in the Harajuku days.
Fans of Moitié in Japan are like that. Go to one of Mana's concerts there and it's a sea of EGL with some EGA. Not everyone wears full on Moitié, but even with that there is a keeping with the style.
As to if lolita still sells in Japan, it does. Even more so now with people coming from China in droves to shop. I was surprised how much some were buying when I was there in March.
So it's still a thing in Japan, but it's not as obvious as it use to be.