You will need to write your own readPasswordChar() function since Keyboard.readChar() echos the typed key.
It will look something like this:  (pseudo Jack)
    function char readPasswordChar() {
        // wait for key pressed
        while ((key = Keyboard.keyPressed) = 0) {}
        do Output.printChar(0);    // print a blob
        // wait for key released
        return key;
    }
You could be more sophisticated and write a readPasswordString(int maxSize) function that would allocate a String and read the typed keys into it.
--Mark