Type 2 diabetes is characterized by hyperglycaemia and dyslipidaemia caused by islet β-cells which are unable to secrete adequate insulin in response to varying degrees of long-standing insulin resistance in genetically predisposed individuals. Insulin resistance is the pathophysiological hallmark of non-alcoholic fatty liver disease (NAFLD). Insulin resistance is the common feature of the metabolic syndrome and its related characteristics. It is a systemic disease affecting the nervous system, muscles, pancreas, kidney, heart, and immune system along with liver. 

A complex interplay of genetic factors and the environment factors or increase insulin resistance and the phenotypic expression of NAFLD in individual patients.  Liver plays a key role in regulating both glucose and lipid metabolism, derangements of which occur in NAFLD and type 2 diabetes. In type 2 diabetes, fasting hyperglycaemia results from unopposed endogenous glucose production due to insulin resistance and postprandial hyperglycaemia from the inability to store glucose as glycogen after a meal. Both fasting and postprandial hyperglycaemia are partially linked to the amount of hepatic steatosis. Lifestyle interventions intended to reduce bodyweight by at least 8% are linked with reduced steatosis and improved insulin resistance in individuals with obesity and type 2 diabetes. 

Source: Liver and diabetes. A vicious circle. Hepatol Res. 2013; 43: 51-64.