Before arriving in the East Indies, "Liverpool" prepared for the deployment in the Mediterranean for two months and had engine defects corrected. At the beginning of the Second World War, "Liverpool" formed part of the 4th Cruiser Squadron, which she left in November to transfer to the 5th Cruiser Squadron, China Station. While part of the station, the cruiser became involved in a diplomatic incident when she intercepted the Japanese passenger liner "Asama Maru" on 21 January 1940. Alerted to reports that German sailors in the United States had arranged transport to Germany, the British Government authorised the station's commander-in-chief to direct a warship to board "Asama Maru" and detain suspected passengers, provided the procedure did not occur within sight of the coast of Japan. Just east of Niijima, off Honshū, "Liverpool" located the liner and removed 21 of the ship's passengers, believed by the British to be survivors of the scuttled German liner . "Asama Maru" had been late and had deviated from her expected course, necessitating an operation much closer to Japan's coast.