I expect it will be allowed only if you ship the JVM and runtime with your app. (And then I suppose Apple might reject you for your app being unreasonably large.)
This sounds nice in theory, but can you point me to any examples of Java apps that are actually distributed this way and are less than, say, 20 MB (or some reasonable threshold for the app's complexity)? I know that, just looking at my JVM framework on my hard drive, it's more than 200MB. Is it really a practical option to shrink this footprint 98%?
I think you've just proven my point, that packaging the JRE isn't going to kill the distribution of apps because of download size. Mostly, it's the frugality of the app's coders which will make or break it with regards to this.