IIUC this happens because StreamReader calls codecs.utf_8_decode without passing final=1 [0], so when the decoder finds the trailing F4 it doesn't decode it yet because it waits from the other 3 bytes (F4 is the start byte of a 4-bytes UTF-8 sequence):

>>> b = b'A\xf5BC\xf4'
>>> chars, decnum = codecs.utf_8_decode(b, 'replace', 0)  # final=0
>>> chars, decnum
('A�BC', 4)  # F4 not decoded yet
>>> b = b[decnum:]
>>> b
b'\xf4'  # F4 still here
>>> chars, decnum = codecs.utf_8_decode(b, 'replace', 0)
>>> chars, decnum
('', 0)  # additional calls keep waiting for the other 3 bytes
>>> chars, decnum = codecs.utf_8_decode(b, 'replace', 1)  # final=1
>>> chars, decnum
('�', 1)  # when final=1 is passed F4 is decoded, but it never happens

While passing 1 makes the attached script work as expected, it breaks several other test in test_codecs (apparently not all the decoders accept the 'final' argument).
Also passing 1 should be done only for the last call: read can be called several times with a specific size, and it shouldn't use final=1 until the last call to avoid errors mid-stream.

[0]: see Lib/codecs.py:482