I'm not sure Damascus steel has been 'lost', just we don't know the exact recipe... I think there's a slight difference...

In terms of strength and quality, Damascus steel was incredibly high quality, and had carbon nanotubes, and most impressively, carbon nanowires (Newscientist), which even today are hard and expensive to manufacture, and lead to some of the strongest materials we can create...

So I'm not a historian but no-one's showed up to answer so I'll do my best. Japan didn't really have a particularly high quality steel, what it had was a very labour intensive way of making pretty good sword blades. Western approaches tended towards chemical processing, that is to chuck a few other things into the crucible to change the steels properties, the modern day version of this is the blast furnace with the mix of ingredients carefully controlled to produce different grades of steel.

Modern steel is pretty much superior to anything produced in the past, we can make steel with a wide range of properties, elasticity, plasticity, hardness etc... which means that whatever steel is used it's likely to be very well adapted to the purpose. Modern sport fencing blades for example are designed to be highly plastic, you'll see fencers bending and straightening them multiple times during a bout, the reason being that a blade which bends is much safer than one which snaps - this sort of control is only possible with modern techniques.

Swordmaking is another matter, historical swordmakers had the advantage of having lots of people who fought with swords to consult with so would have had some fairly refined designs on hand. Certainly swords which still survive today often have an excellent feel in the hand compared to modern reproductions. However I'm pretty sure that were there a market for it modern technology could produce a machine that simply stamped out perfect swords with almost no human interaction.