This isn't a bug in the compiler or the JVM. The Java spec explicitly allows this optimization to happen. From The Java Language Specification (SE 7), section 12.6.1:

> Optimizing transformations of a program can be designed that reduce the number of objects that are reachable to be less than those which would naively be considered reachable. For example, a Java compiler or code generator may choose to set a variable or parameter that will no longer be used to null to cause the storage for such an object to be potentially reclaimable sooner.

Also, the "this" keyword is treated like a parameter. (See the end of section 2.6.1 of the JVM spec.)