Congratulations, I think you may have the symptoms of a typical Honda Secondary Master Cylinder (SMC) Fail.
How easily should the piston compress?
At rest the SMC piston should be fully retracted, short of disassembling the SMC, the best indicator is that there is NO play of the SMC Push Rod along the axis of movement. From this position the SMC piston should move forward (into the SMC cylinder) a few millimeters before meeting firm resistance.
I pulled the caliper, removed the circle clip and removed the part that contacts the piston. The outer bore looks immaculate.
Unfortunately, unless the SMC piston is completely removed from the SMC cylinder, the bore cannot be fully inspected, the good news is that the limited bore surface that has been exposed is not corroded.
Laying on the ground, I kept my finger on the piston and used my foot to push lightly on the rear brake. The piston pushed out a little and I was able to push it back in with some resistance.
Exactly. The foot brake (Rear Master Cylinder) will exert force on the SMC piston by way of the Recuperation Port, push a bit harder, and you'll force the SMC piston completely out of the SMC cylinder. The SMC piston should move forward into the SMC cylinder with minimal resistance until the SMC piston passes (thus blocking) the Compensation Port, and applies force to the rear caliper.
I figure that's probably normal since it's a hydraulic circuit.
Difficult to tell without a full inspection of the SMC cylinder bore.
When I reassembled everything I stepped on the rear brake a few times and the slack was gone. I then tested the functionality by rotating the rear tire with my foot and pushing the caliper forward as it would if I were moving and used the front brakes. Stopped the rear as expected. Now the slack is back.
Exactly. When the SMC was reassembled, the SMC piston (probably) was fully retracted. Applying the foot brake would not cause the SMC piston to move from it's fully retracted position. Applying the SMC by way of physically moving the unit causes the SMC piston to move as intended, that the SMC piston does not return to the fully retracted position when physical force is removed is a pretty good indication that the SMC cylinder bore may have become corroded. The SMC piston return spring is insufficient to overcome the increase in piston to cylinder resistance due to corrosion.
Might have to pull the piston and clean it up?
Exactly. As others have pointed out, brakes are an important component in the safe operation of the motorcycle. Depending on your mechanical skills, this maybe a task that you are comfortable with, or you may want to have a specialist do the work.
Is it possible that there is just a little bit of air in the system causing it not to expand and retract as it should?
Spongy brake pedal/lever is the usual indication of air captured in a hydraulic brake system. Something in the SMC is causing the SMC piston to 'stick' within the SMC cylinder, the most likely culprit is dirt contamination and corrosion of the SMC cylinder bore.
Here are a few links that maybe of interest:
Drawing -
Linked Brake System
Drawing -
Secondary Master Cylinder
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Is This The Dreaded SMC Failure?
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How to clean the SMC inside properly? Please help.
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Come on Honda, I expect more from your engineers!