This paper investigates the dynamic capital mobility, time-varying capital market risk and exchange rate misalignment of seven Asian countries with special reference to Japan, in an attempt to find the causes and policy implications of financial crisis in East Asia. A study of dynamic capital mobility can serve many useful purposes. First, even in the absence of capital and exchange rate controls, there are periods when capital flows are smoother than others. Second, from a policy perspective, it is rewarding to know whether capital markets have indeed become more closely linked across other countries. Increased capital mobility not only reflects the influence of various liberalization measures taken in each country, but also provides obvious suggestions about management of the exchange rate. The tremendous problems faced with Asian crisis countries point to the policy dilemma in financially open economics. This paper is organized as follows: Section two provides the dynamic capital mobility of seven Asian countries. Section three estimates the time-varying capital market risk of these countries using a GARCH model. Section four investigates the misalignment of Asian countries' exchange rate vis-a-vis the Japanese yen and section five concludes.