The theory (and practice) of automatic groups is the most generally useful systematic way to deal with these things. There is a nice package written by Derek Holt and his associates called kbmag (available for download here: http://www.warwick.ac.uk/~mareg/download/kbmag2/ ). There is a book "Word Processing in Groups" by Epstein, Cannon, Levy, Holt, Paterson and Thurston that describes the ideas behind this approach. It's not guaranteed to work (not all groups have an "automatic" presentation) but it is surprisingly effective.
A previous answerer (Steve Huntsman) has given a specific derivation for your example. But I made up a short input file for kbmag, and it immediately came back with a "confluent" system of relations (a particular system which has a technical property that when you just do a series of string substitutions you always get the same answer no matter what order you do them in). For your edification, here they are (xi and yi are x^-1 and yi^-1 respectively, idWord is 1 [edited to show the derivations from kbmag):
#Initial equation number 1:
#x*xi -> IdWord
#Initial equation number 2:
#xi*x -> IdWord
#Initial equation number 3:
#y*yi -> IdWord
#Initial equation number 4:
#yi*y -> IdWord
#Initial equation number 5:
#y^4 -> x^3*yi
#Initial equation number 6:
#y*x*y -> x^2
#New equation number 7, from overlap 5, 3:
#x^3*yi^2->y^3
#New equation number 8, from overlap 4, 5:
#yi*x^3->y^4
#New equation number 9, from overlap 6, 3:
#x^2*yi->y*x
#New equation number 10, from overlap 4, 6:
#yi*x^2->x*y
#New equation number 11, from overlap 2, 7:
#xi*y^3->y*x*yi
#New equation number 12, from overlap 2, 9:
#xi*y*x->x*yi
#New equation number 13, from overlap 10, 1:
#x*y*xi->yi*x
#New equation number 14, from overlap 1, 11:
#x*y*x*yi->y^3
#New equation number 15, from overlap 11, 3:
#y*x*yi^2->xi*y^2
#New equation number 16, from overlap 12, 1:
#x*yi*xi->xi*y
#New equation number 17, from overlap 2, 13:
#xi*yi*x->y*xi
#New equation number 18, from overlap 4, 15:
#yi*xi*y^2->x*yi^2
#New equation number 19, from overlap 2, 16:
#xi^2*y->yi*xi
#New equation number 20, from overlap 17, 1:
#y*xi^2->xi*yi
#New equation number 21, from overlap 18, 3:
#x*yi^3->yi*xi*y
#New equation number 22, from overlap 19, 3:
#yi*xi*yi->xi^2
#New equation number 23, from overlap 2, 21:
#xi*yi*xi*y->yi^3
#New equation number 24, from overlap 23, 3:
#yi^4->xi*yi*xi
#New equation number 25, from overlap 3, 24:
#y*xi*yi*xi->yi^3
#New equation number 26, from overlap 25, 2:
#yi^3*x->y*xi*yi
#New equation number 27, from overlap 3, 26:
#y^2*xi*yi->yi^2*x
#New equation number 28, from overlap 27, 4:
#yi^2*x*y->y^2*xi
#New equation number 29, from overlap 3, 28:
#y^3*xi->yi*x*y
#New equation number 30, from overlap 29, 2:
#yi*x*y*x->y^3
#New equation number 31, from overlap 5, 5:
#y*x^3->x^3*y
#New equation number 32, from overlap 5, 6:
#y^3*x^2->x*y*x^2*y
#New equation number 33, from overlap 8, 7:
#yi*x*y^3->x*y^2*x*yi
#New equation number 34, from overlap 7, 8:
#y*x^2*y*x->x^2*y^3
#New equation number 35, from overlap 11, 6:
#y*x*yi*x*y->xi*y^2*x^2
#New equation number 36, from overlap 12, 9:
#xi*y^2*x->x*yi*x*yi
#New equation number 37, from overlap 10, 13:
#yi*x*yi*x->x*y^2*xi
#New equation number 38, from overlap 11, 15:
#y*x*yi*x*yi^2->xi*y^2*xi*y^2
#New equation number 39, from overlap 12, 16:
#xi*y*xi*y->x*yi^2*xi
#New equation number 40, from overlap 17, 13:
#y*xi*y*xi->xi*yi^2*x
#New equation number 41, from overlap 18, 15:
#yi*x*yi^2*xi*y->x*yi^2*x*yi^2
#New equation number 42, from overlap 18, 20:
#yi*xi*y*xi*yi->x*yi^2*xi^2
#New equation number 43, from overlap 19, 20:
#yi*xi^3->xi^3*yi
#New equation number 44, from overlap 17, 21:
#y*xi*yi^3->xi*yi^2*xi*y
#New equation number 45, from overlap 23, 20:
#yi^3*xi^2->xi*yi*xi^2*yi
#New equation number 46, from overlap 22, 24:
#yi*xi^2*yi*xi->xi^2*yi^3
#New equation number 47, from overlap 25, 19:
#yi^3*xi*y->y*xi*yi^2*xi
#New equation number 48, from overlap 22, 26:
#xi^2*yi^2*x->x*yi^2*xi^2
#New equation number 49, from overlap 27, 26:
#yi^2*x*yi^2*x->y*xi*yi^2*x*yi
#New equation number 50, from overlap 49, 1:
#y*xi*yi^2*xi*y->yi^2*x*yi^2
#New equation number 51, from overlap 7, 28:
#x^3*y^2*xi->y^2*x^2
#New equation number 52, from overlap 27, 28:
#yi*x*y^2*xi*y->y^2*xi*y^2*xi
#New equation number 53, from overlap 29, 12:
#yi*x*y^2*x->y^3*x*yi
#New equation number 54, from overlap 31, 7:
#x^3*y^2*x*yi->y*x^2*y^3
#New equation number 55, from overlap 32, 13:
#x*y*x^2*y^2*xi->y^3*x*yi*x
#New equation number 56, from overlap 32, 14:
#x*y*x^2*y^2*x*yi->y^2*x^2*y^2
#New equation number 57, from overlap 2, 56:
#y*x^2*y^2*x*yi->x^2*y^2*xi*y^2
#New equation number 58, from overlap 56, 4:
#y^2*x^2*y^3->x*y*x^2*y^2*x
#New equation number 59, from overlap 57, 4:
#x^2*y^3*x*yi->y*x^2*y^2*x
#New equation number 60, from overlap 33, 34:
#y^2*x^2*y^2*xi*y^2->x*y^2*x^2*y^2*x
#New equation number 61, from overlap 11, 35:
#x^2*y^2*xi*y^2*xi->y*x^2*y^2*xi*y
#New equation number 62, from overlap 35, 25:
#x*yi*x*yi^2*xi->xi*y^2*xi*y
#New equation number 63, from overlap 35, 32:
#x^2*y^2*x^2*y^2*xi->y*x^2*y^2*x^2*y
#New equation number 64, from overlap 33, 35:
#y^2*x^2*y^2*xi*y->yi*x*yi^2*x*yi^2
#New equation number 65, from overlap 64, 3:
#y^2*x^2*y^2->yi^2*x*yi^2
#New equation number 66, from overlap 4, 64:
#y*x^2*y^2*xi*y->xi*yi^2*x*yi^2*xi
#New equation number 67, from overlap 65, 3:
#y*x^2*y->xi*yi^2*xi
#New equation number 68, from overlap 4, 66:
#xi*y*xi*yi^2*xi->x^2*y^2*xi*y
#New equation number 69, from overlap 67, 3:
#xi*yi*xi^2->y*x^2
#New equation number 70, from overlap 4, 67:
#xi^2*yi*xi->x^2*y
#New equation number 71, from overlap 68, 2:
#x^2*y^2*x->xi*y*xi*yi
#New equation number 72, from overlap 1, 69:
#x*y*x^2->yi*xi^2
#New equation number 73, from overlap 69, 2:
#x^3*y->xi*yi*xi
#New equation number 74, from overlap 70, 2:
#x^2*y*x->xi^2*yi
#New equation number 75, from overlap 71, 1:
#xi*yi^3->x^2*y^2
#New equation number 76, from overlap 2, 71:
#yi*xi^2*yi->x*y^2*x
#New equation number 77, from overlap 72, 1:
#xi^3*yi->x*y*x
#New equation number 78, from overlap 73, 3:
#xi^3->x^3
#New equation number 79, from overlap 75, 4:
#x^2*y^3->xi*yi^2
#New equation number 80, from overlap 1, 78:
#x^4->xi^2
#New equation number 81, from overlap 2, 79:
#xi^2*yi^2->x*y^3
#New equation number 82, from overlap 29, 36:
#y^3*x*yi*x*yi->x*y^2*x*yi*x
#New equation number 83, from overlap 7, 37:
#y^3*x*yi*x->yi^2*xi*y*xi
#New equation number 84, from overlap 4, 83:
#xi*yi^2*xi^2->y*x*yi*x
#New equation number 85, from overlap 1, 84:
#yi^2*xi^2->y^3*x
#New equation number 86, from overlap 9, 37:
#yi^3*xi->y^2*x^2
#New equation number 87, from overlap 38, 8:
#x^2*y^2*xi*y^2->xi*yi^2*x*yi^2
#New equation number 88, from overlap 11, 38:
#xi*y^2*xi*y^2*xi*y->y^2*x*yi*x*yi^2
#New equation number 89, from overlap 88, 3:
#xi*y^2*xi*y^2*xi->y*xi*y^2*xi*y
#New equation number 90, from overlap 38, 37:
#y*xi*yi^2*x*yi^2*xi->yi*x*yi^2*x*yi^2
#New equation number 91, from overlap 39, 39:
#x*y^2*x^2->yi*xi*y*xi
#New equation number 92, from overlap 41, 39:
#yi*x*yi^2*x*yi^2*xi->x*yi*x*yi^2*x*yi^2
#New equation number 93, from overlap 42, 47:
#xi*y*xi*yi^2*x*yi^2->x*y^2*xi*y^2*xi*y
#New equation number 94, from overlap 93, 4:
#x*y^2*xi*y^2*xi*y^2->xi*y*xi*yi^2*x*yi
#New equation number 95, from overlap 2, 94:
#y^2*xi*y^2*xi*y^2->x*y^2*x*yi*x*yi
#68 eqns; total len: lhs, rhs = 299, 246; 77 states; 0 secs. max len: lhs, rhs = 8, 8.
#System is confluent.
#Halting with 68 equations. #Exit status is 0