For any test function $\phi(x,y)$ we have
$$\int_{-\infty}^\infty \int_{-\infty}^\infty \delta(x-y)\delta(y)\phi(x,y)\,dx\,dy=\phi(0,0)=\int_{-\infty}^\infty \int_{-\infty}^\infty \delta(x)\delta(y)\phi(x,y)\,dx\,dy$$
Hence, in distribution we assert that $\delta(x-y)\delta(y)=\delta(x)\delta(y)$. And we are done.
There is the question of the order of the distributions. The question that comes to mind is "How do we define $\delta(y)\delta(y-x)$ as a distribution?" In the next section, that question is answered.
Let $\phi(x,y)$ be an arbitrary test function and let $\delta_m(y)$ and $\gamma_n(y-x)$ be two regularizations of the Dirac Delta such that
$$\lim_{m\to\infty}\int_{-\infty}^\infty \delta_m(y)\phi(x,y)\,dy=\phi(x,0)$$
$$\lim_{n\to\infty}\int_{-\infty}^\infty \gamma_n(y-x)\phi(x,y)\,dy=\phi(x,x)$$
Then, since $\delta_m\,\phi\in C_c^\infty(\mathbb{R}^2)$ we can write
$$\begin{align}
\lim_{n,m\to \infty}\int_{-\infty}^\infty\int_{-\infty}^\infty \delta_m(y)\gamma_n(y-x)\phi(x,y)\,dy\,dx&=\lim_{m\to \infty}\int_{-\infty}^\infty \lim_{n\to\infty}\int_{-\infty}^\infty \delta_m(y)\gamma_n(y-x)\phi(x,y)\,dy\,dx\\\\
&=\lim_{m\to \infty}\int_{-\infty}^\infty \delta_m(x)\phi(x,x)\,dx\\\\
&=\phi(0,0)
\end{align}$$
Hence, we assert that in distribution we have $\delta(y)\delta(y-x)=\delta(x)\delta(y)$. And note that we could have interchanged the order of integration without affecting this result.