After my business with the Merchant was done, I stayed in the kingdom for a little while to see the status of the forest.
Apparently, the monsters there stop spawning after a certain number, and only increase their number by "natural" means. If the population drops enough, the spawns will resume though. At least, that's what everyone has been reporting.
Thanks to this, we can safely control their numbers.
Mia reported that she's been getting experience from the monsters, so it seems there isn't a level cap inside the kingdom. Well, the Merchant's existence already proves that, but the interesting bit is that it's possible to use the kingdom as a secondary means of acquiring experience.
The only problem with that is that for that to be worthwhile, we'd have to expand the land and hope strong monsters spawn, resulting in the kingdom losing its current safe zone status.