Yes. You''ll have to put a Condition on that validation, which checks whatever conditions you used to hide the field.
So for example, if you have a radio button with values 0 and 1, and you hide the password field if that element is 1, then in your validation condition on the password:
return $formModel->formData['yourtable___yourradio'] != '1';
... which should prevent the validation from running.
-- hugh