This is essentially already being done. The kernel will keep in RAM as much of the file that the system is operating on as will fit

Code can care about cache locality and improve upon this default behavior, like if you find a heuristic where you can do another part of the decompression already while some of the data is still in a CPU cache and you don't have to hit main RAM, but whether that's possible will depend on the algorithm

Being in RAM sadly doesn't mean that random access doesn't matter anymore. Just like how hard drives (compare to, say, tape drives) are random access, you still have swapping times to load the data into the CPU (or arm-moving times in the case of an HDD)