KOBO has no option to change hyphenation settings comfortably, but you can (quite easily) modify the hyphenation settings in the firmware installer files:
Download the firmware to your computer. (Don't install it yet).
Open the KoboRoot.tgz file with 7Zip.
Open the TAR inside with 7Zip.
Go to \.\usr\local\Kobo\hyphenDicts\
Edit the files for the languages you are using. (In the first line you will find the LEFTHYPHENMIN and RIGHTHYPHENMIN settings, setting these to lower values will result in more hyphenation.)
Save and leave.
Copy the entire contents of the modified firmware zip file to the .kobo directory on the Touch.
Disconnect the Touch.
The Touch will now install the firmware with the adapted hyphenation settings.
To prevent firmware updates from overriding these settings again you will have to modify any future firmware in the same way (or, alternatively remove the hyphen dictionary files altogether from future firmware updates).