I had a similar problem on my KLR. I changed pads, piston seals, fluid even master cylinder.
I swapped out the stainless steal brake line (and bled the brakes) from my Tengai and voila!!! Instant brakes!!!
It looks like the stock rubber brake hose was flexing too much when you applied the brake. Tyr this, pull the brake lever and put your hand around the hose, see if it bulges out a little.... that might be your problem.
Hope this helps, good luck and keep us posted.
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John C.
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