The challenge is there.
Have you played the game?
You could, for instance, start the game with new extra members that start at level 1, and these guys would be on par with the early dungeons. If you remove the level cap, these level ones don't stand a chance.
Assuming you don't start with new members, even if you breeze through the early dungeons, there are immense amounts of other high level dungeons that you don't even have a chance of playing on your first and second and, on my case, third playthroughs. You need to level up your party members. The only way to do that is to fight on high level dungeons. If you waste all your time fighting damage sponges on the first couple of dungeons, you get jack all experience, and you'll waste tens of hours before you get to any of the new content, of which there is a lot.
The only thing removing the level cap does is make you waste extra hours on the initial dungeons. It's not challenging, it's boring. You're not fighting new enemies with special abilities on levels you've never seen before like in the high level dungeons; you're fighting on dungeons you already know the layout of, against enemies you've fought countless times before with gargantuan amounts of extra health.
There's a lot of grinding in this game. Now imagine every critter had the health of your average boss. That's not challenge. That's a waste of time.