Component is a bit harder. The oversimplified way of doing it is that you'd need to tap the RGB lines, and run them through a RGB to YUV transcoder, and possibly build an amp due to the system's weak RGB. Definately doable, though!
Alternatively, you could use an external RGB SCART to YUV converter, then do an RGB mod to the TurboGrafx. You wouldn't have to try to cram everything into the TG16's shell, and you could use the external converter with other systems you may have. This is what I do with my Duo R, and what I hope to eventually do with my 16.