The Colombia international fell out of favour at the Bernabeu last season, making just 13 league starts and being allowed to leave for Bayern on an initial two-year loan.
Following a slow start to life at the Allianz Arena, James has looked a much more complete player since Heynckes replaced Carlo Ancelotti in early October, playing a direct part in 17 goals.
Ahead of Wednesday's Champions League semi-final first-leg clash between Bayern and Madrid in Bavaria, Heynckes told reporters: "He was a little depressed. I took care of him, I had lots of talks with him, and step by step he found confidence.
"He is more relaxed within the team. Our fans here, when they see him play football, they enjoy it. Above all he is a player who has fantasy, has an overview. He is more open-minded and gives the impression he feels well and has settled in Munich.
"I think this is most fundamental. He has been learning German, but as you know with Spanish speaking players it is difficult for them to learn. But I can speak with him."