This paper investigates-whether liquidity and liquidity risk are priced in Japan. Using modified Amihud illiquidity measures, we find both cross-sectional and time series evidence that liquidity is priced in the Japanese stock market during the period 1975-2006. The evidence is largely consistent with Amihud's (2002) findings in the US market. We further employ the liquidity-adjusted CAPM proposed by Acharya and Pedersen (2005) to examine whether liquidity risk is priced in Japan. Consistent wit