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 35 miles (56 km) 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 Columbus.
Asama Maru had been late and had deviated from her expected course, necessitating an operation much closer to Japan's coast.

Liverpool discharged a warning shot across Asama Maru's bows to compel the liner to halt, afterwards deploying 12 men to conduct the search.
Four days after the incident, the NYK Line dismissed Captain Watanabe, under the pretense of retirement, accusing him of "misconduct".
The Government of Japan condemned the operation as an abuse of belligerent rights and formally protested the action, which further escalated tensions between the two countries.
The Japanese and British governments sought to defuse the dispute through negotiation, and on 5 February, the two countries accepted a proposal which entailed the release of nine Germans in exchange for Japan pledging to deny military-age German citizens access to their vessels.
In Australia's official history of the war, it was said that the most senior of the nine Germans, Captain Groth, remarked during his passage to Japan aboard the armed merchant cruiser Kanimbla that the operation had been "an excellent piece of work, and an action which would deter the remainder of the German crews still in the United States, approximately 1000 men, from making the passage".

In April, Liverpool became the flagship of Rear-Admiral Arthur Murray's Red Sea Force, which was formed with the Australian cruiser HMAS Hobart.
The Red Sea Force was intended to help execute naval strategy in the area by performing a variety of duties, such as patrols and blockade enforcement in the event of war with Italy.
While in the area, Liverpool escorted a convoy transporting contingents from the Australian military to Suez.
When ordered to the Mediterranean in June, Liverpool relinquished her status as flagship with the transfer of Admiral Murray to the New Zealand cruiser HMNZS Leander at Port Sudan.
To accommodate the admiral and his staff, Leander transferred three officers and seven ratings to Liverpool.
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 35 miles (56 km) 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 Columbus. Asama Maru had been late and had deviated from her expected course, necessitating an operation much closer to Japan's coast.
Liverpool discharged a warning shot across Asama Maru's bows to compel the liner to halt, afterwards deploying 12 men to conduct the search. Four days after the incident, the NYK Line dismissed Captain Watanabe, under the pretense of retirement, accusing him of "misconduct". The Government of Japan condemned the operation as an abuse of belligerent rights and formally protested the action, which further escalated tensions between the two countries. The Japanese and British governments sought to defuse the dispute through negotiation, and on 5 February, the two countries accepted a proposal which entailed the release of nine Germans in exchange for Japan pledging to deny military-age German citizens access to their vessels. In Australia's official history of the war, it was said that the most senior of the nine Germans, Captain Groth, remarked during his passage to Japan aboard the armed merchant cruiser Kanimbla that the operation had been "an excellent piece of work, and an action which would deter the remainder of the German crews still in the United States, approximately 1000 men, from making the passage".
In April, Liverpool became the flagship of Rear-Admiral Arthur Murray's Red Sea Force, which was formed with the Australian cruiser HMAS Hobart. The Red Sea Force was intended to help execute naval strategy in the area by performing a variety of duties, such as patrols and blockade enforcement in the event of war with Italy. While in the area, Liverpool escorted a convoy transporting contingents from the Australian military to Suez. When ordered to the Mediterranean in June, Liverpool relinquished her status as flagship with the transfer of Admiral Murray to the New Zealand cruiser HMNZS Leander at Port Sudan. To accommodate the admiral and his staff, Leander transferred three officers and seven ratings to Liverpool.
HMS Liverpool (C11)