Although a .java file can be created in 118 it will not be seen when
loading a sketch.

To test this:

Create a .java tab, and put a comment in it or something. Click new sketch.
Then load the previous sketch with the .java tab. The .java tab will fail
to load. This is nuisance when developing a library from within Processing.

Workaround: copy and paste .java file contents in a .pde tab and vice versa.

fixed for 0119.

please note that you *should not* be developing libraries in processing
itself. from the howto:

It is not possible to build libraries from within Processing itself.
In fact, creating a library with Processing will cause problems
because when exported as an applet, the jar file will contain the
current version of the processing.core classes, which will cause
major conflicts when trying to use any other code.