Yes, you can use a java action to assign a new hashed value to a password attribute. Make sure that you put the hash as salt in front of the hash. In code:
IMendixObject myobject = //get the user from somewhere, argument from MF for example
MendixHashString password = (MendixHashString ) myObject.getMember(this.getContext(), "Password");
password.setHash(this.getContext(), "{md5}" + myHashString);
Core.commit(this, myobject);