The 31-year-old has represented his country at Sevens level and played in the summer outing against the Barbarians but has yet to receive full Test recognition from Declan Kidney.
Last weekend he returned to RaboDirect PRO12 action after nearly three months out with a groin injury to play 75 minutes in the 31-3 home win over Glasgow Warriors.
And after watching him put in a sterling performance in the 15-9 Heineken Cup victory over Saracens, Penney talked up Coughlan's prospects of pulling on an Ireland shirt in the new year.
"There has been talk about him [Coughlan] getting an Irish opportunity at some point. Jeepers, he would wear the green jersey very, very well," said Penney.
"I know there are some great loosies [back-row forwards] floating around Ireland at the moment, but James, we know what his strengths are and he plays to them so well.
"Coming off the back of seven weeks off, having 70 minutes last week and having to do that out there, I think he made one error and was just terrific for us. He'll get better."
The victory ensured Munster kept their hopes of topping Pool One alive ahead of the two sides' crunch clash at Vicarage Road on Sunday - and Penney insists his men are up to the task.
"We'll keep beavering away and doing what we are doing and, hopefully, we can slip in under the radar," said Penney.
"Again we can maybe ambush them a little bit, who knows?"
Guinness PRO12 Munster News
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