My sense is that Yokai Watch has caught on a lot more in Japan than it has here. Maybe it's a lot more popular with the younger demographic here, but I don't personally know anyone who plays it. (Then again, I only know a couple of "real life" people who play Pokemon these days, so my sample size is pretty small.) I wonder if a lot of the issue is that Pokemon has aged, and the fan base has aged. A lot of people who used to love it have outgrown it, but for younger kids today, it isn't new, and there isn't a Pokemon craze like there was back in the days of RBY and the early anime. Before much longer, Pokemon may run into the issue among kids that it's something their parents played, which may make it inherently uncool.
I don't personally see the appeal of Yokai Watch, though I'll admit that I've avoided even playing the demo thus far because I don't want to do anything to hurt my favorite franchise. I'm pretty happy with Pokemon the way it is, and I don't want it to get driven down the drain. Fortunately, it seems to be fending off Yokai fairly well so far, but I do wonder what changes GF may make to try to make the series appeal more to a wider demographic. Some data I saw suggested that a large portion of Pokemon early adopters are young adults now, the people who grew up the game, and something will likely need to be done to draw more people into the series. I just hope any simplifications don't wreck the things I love about the series (like Nintendo seems to be doing with some other franchises I love [*cough* Paper Mario *cough*]).
I think re-releasing RBY was a good move to bring some older fans back, though. I get the sense a lot of people picked up one of those games to relive their childhoods, and once they get hooked, there's a good chance they'll go looking for a newer entry, either XY or ORAS. The link between RBY and Sun/Moon may draw more people in as well.
Personally, I hope Pokemon lives forever, and I hope GF and Nintendo do nothing to screw it up in the meantime.
