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It will still run...lights will not work unless it is in that position.

I think that seal can be changed without pulling the axle out.. I'd have a small lever/hook that would pull it out I'm pretty sure. If you can get something between the seal and the axle, something with a slight turn or hook at the end, you can quite likely pull/lever it out. And yeah, I'd check why/if there's a reason it's leaking.. Perhaps a bit of grass wrapped around the axle, or a worn bearing, or the breather's blocked and the housing is pressurising when it gets warm.

Yeah the seal is leaking, is is a very tiny leak, and as Mech said part #12, that is the fix, but me being the person i am i have to know why it failed, i would remove the dust cover and see if you can pin point the leak, see if anything has pinched the seal such as corrosion, trash stick, dust cover etc, sometimes you can get a small leak like that to stop if you clean it up a bit with kerosene, thats cause the seal to swell a bit, but most times seals just fail and have to be replaced. Just something to look at before you tear the axel out.

Part #11 and #12 you want. The inner one is to keep the oil in and the outer one is to keep the dirt out.. You should check the bearing #10 too. And the opposite side, #13, #14. https://www.babbittsonline.com/oemparts/a/yam/5003910df870021f60a0d2c2/rear-wheel