This week's book giveaway is in the OCPJP forum. We're giving away four copies of OCA/OCP Java SE 7 Programmer I & II Study Guide and have Kathy Sierra & Bert Bates on-line! See this thread for details.
It uses both in different places. For class files it uses UTF-8 representations, as per the JVM spec, and in runtime memory it generally uses straight Unicode (which is not really specified anywhere, it's just easiest, given that you need to be able to return a Unicode value for the charAt() method.)