The England midfielder is being linked with a return to the Northwest, where Manchester United and former club Manchester City are both interest.
But after Palmer's second-half appearance in their Champions League win at Napoli, James said: "He's been in a difficult period. He's had a few setbacks. It's been slow for him this season, but we're super happy to have him.
"He showed what he can do in the 45 minutes he played. Everyone needs to stay patient with him. He's an amazing player. He's still super young. He's going to improve with time."
On the transfer rumours around Palmer, James also said: "Of course he's committed to Chelsea. He's a Chelsea player. Many players have speculation in transfer windows. It's normal for players.
"He's conducted himself really well. We're super happy with him."