The Japanese would rather play alongside his current team-mate than with the former Real Madrid hitman and has stressed Inter do not fear AC Milan
Palacio has netted 15 times in 34 Serie A appearances so far this term against Higuain's 17 goals in 31 games, yet Nagatomo prefers the 32-year-old over the former Real Madrid man.
"Who is better, Higuain or Palacio? I’d say Palacio," Nagatomo told Sky Sport 24.
"Higuain is good, but Rodrigo is my friend as well as a fantastic player."
The Japan international then went on to discuss the derby against AC Milan on May 4 and insisted that Inter are not worried by their rivals' good run of form, which has seen them win their last five games in the league.
"Are we worried about Milan? No, I have a lot of respect for Milan, but I’m not worried by their form.
"I often speak with [Keisuke] Honda. He’s an exceptional professional and a wonderful person. However, we won’t be doing much talking in the week before the clash.
"I’ve yet to play on a losing side against Milan, so let’s hope that continues."
Inter currently sit fifth in Serie A, holding a five-point lead over sixth-placed Milan.