When I've seen issues like this with ceramic piston Shimano brakes, the root cause has usually or always been that the pistons are broken (shattered, small or large chunks broken off them internally, chipped, etc).
I believe the physics of the effect go something like a piece of broken piston blocks free movement of fluid from actuating one of the pistons, or the piston is physically stuck in place as a result of a chunk being broken from it, causing roughness and friction instead of being ultra-smooth where the piston slides through the seals. Once one piston is immobile or less mobile, the other one extends and might touch the rotor, but without the other one pressing the other side you get a lever-goes-to-bar type experience in the hand.
Retracting the piston could have been the thing that took the problem from bad to worse. For example, the fluid movement that came with it could have gotten the broken chunk in place sufficiently to cause the blockage, or could have gotten a rough spot lined up with the caliper seal sufficient to get the piston stuck in place.
This is all speculative of course, but something caused the issue.
One test is to press directly on the surface of each piston with a plastic tire lever to see if there's a crunching feeling or sensation. That is a good tell that it's broken.
These problems are widespread enough that aftermarket replacement pistons have emerged.
