Like random encounters in FFT, the enemies level up along with the party. What makes or breaks a battle then is your junctions. There are ways to gain abilities without Exp, so if you go that route, low levels are better.

But in terms of drawing magic and dropping items, the best stuff is from higher level monsters. You can eventually level enemies up or down at will with the right GF ability, so again, raising party levels is not necessary.

The low level challenge is time consuming, so bear that in mind. Personally I never bothered with it.